UK Crypto Regulations: Hidden Pitfalls That May Surprise Companies

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 complexities that firms handling client crypto assets must navigate. 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 reward-compounding tools may lead to the loss of their pure tech exemption, necessitating full approval for arranging staking. The FCA aims to enhance consumer protections and support fair, transparent markets with these new guidelines. Notably, the regulator has addressed 'shadow custody' for the first time, clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. Stablecoin issuers are also subject to strict requirements, with issuance only permitted if the issuer is established in the UK and manages the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA is seeking feedback on these proposals until June 3, 2026, and intends to publish finalized rules later 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. Companies have a five-month application window, from September 30, 2026, to February 28, 2027, to apply for the new approvals, and only those who apply during this period will be allowed to continue operating while the regulator reviews their applications.