UK Crypto Regulations: Hidden Pitfalls for Unwary Firms

The UK's Financial Conduct Authority has unveiled proposed crypto regulations that could significantly broaden the definition of custody, potentially ensnaring platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical pitfalls that firms handling client crypto assets must be aware of. A key aspect of the rules is the 24-hour threshold for custody, where any firm or platform holding client assets for more than a day during trade settlement may be classified as a regulated custodian, requiring a full safeguarding license. Additionally, validators and node operators must exercise caution, as providing 'added value' features such as user dashboards or yield tools may necessitate seeking approval for arranging staking. The regulator has also addressed the issue of 'shadow custody,' clarifying that a crypto service provider is considered a custodian if it can theoretically override a client's authority, even if it guarantees it will not exert that power. For stablecoin issuers, the rules are equally clear, requiring issuance to be legal only if the issuer is established in the UK and manages the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA has requested feedback on these proposals, with a consultation period ending on June 3, 2026, and intends to publish finalized rules in policy statements this summer, followed by the final perimeter guidance in September. The new regulations will require all entities providing crypto services to transition from the current money-laundering registration system to a more stringent approval regime under the UK's Financial Services and Markets Act. Firms that wish to continue operating under the new regulations will have a five-month application window, from September 30, 2026, to February 28, 2027, and only those who apply during this period will be eligible for 'savings provisions' that allow them to continue operating while the regulator reviews their application.