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

The UK's Financial Conduct Authority has introduced proposed crypto regulations that may 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, highlights several technical traps for firms handling client crypto assets. A key aspect of the rules is the 24-hour threshold for custody, where any firm holding client assets for more than a day during trade settlement may 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 lead to the loss of their pure tech exemption, necessitating full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair markets with these new regulations. Notably, the guidance addresses 'shadow custody' and stablecoin issuance, emphasizing that only UK-based issuers managing the entire lifecycle of stablecoins will be considered legal. The FCA is seeking feedback on these proposals until June 3, 2026, and plans to publish finalized rules and perimeter guidance later this year. The new regulations will require all crypto service providers to transition from the current money-laundering registration system to a stricter approval regime under the Financial Services and Markets Act. Firms have a five-month application window to comply with the new regulations, and those who miss the deadline may face fines, suspensions, or permanent closure.