New UK Crypto Regulations May Catch Firms Off Guard

The UK's Financial Conduct Authority has proposed new crypto regulations that may expand the definition of custody, potentially affecting platforms and software providers that do not currently consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines 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 yield tools may lead to the loss of their tech exemption, necessitating full approval for arranging staking. The FCA has emphasized its commitment to strengthening consumer protections and supporting fair, transparent markets as the sector evolves. Notably, the regulator has addressed the 'shadow custody' issue, clarifying that a crypto service provider is considered a custodian if it can theoretically override a client's authority, even if it guarantees not to exert that power. The guidance also outlines requirements for stablecoin issuers, mandating that they 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, 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 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.