UK's New Crypto Regulations: A 24-Hour Deadline That Could Catch Firms Off Guard

The UK's Financial Conduct Authority has introduced new crypto regulations that could broaden the definition of custody, potentially affecting platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical traps that firms handling client crypto assets must watch out for. According to the rules, any firm holding client assets for more than 24 hours during trade settlement will likely be classified as a regulated custodian, requiring a full safeguarding license. Validators and node operators must also exercise caution, as providing 'added value' features such as user dashboards or yield tools may trigger the need for full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair, transparent, and orderly markets with these new regulations. Notably, the FCA has addressed the issue of 'shadow custody,' clarifying that crypto service providers who can theoretically override a client's authority are considered custodians, even if they guarantee not to exert that power. The regulator has also set out rules for stablecoin issuers, mandating that they must be established in the UK and manage the entire lifecycle of the stablecoin. The FCA is seeking feedback on these proposals until June 3, 2026, and intends to publish finalized rules later this summer. The new regulations will require all entities providing crypto services to transition from the current money-laundering registration system to a stricter approval regime under the UK's Financial Services and Markets Act. Firms that fail to apply for approval during the designated five-month window may face fines, suspensions, or permanent closure.