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 may expand the definition of custody, potentially affecting platforms and software providers that do not consider themselves custodians. The Cryptoasset Perimeter Guidance, published on Wednesday, sets a 24-hour threshold for custody, meaning that any firm holding client assets for more than a day during trade settlement may be classified as a regulated custodian and require 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 and require full approval for arranging staking. The regulator has also addressed the issue of 'shadow custody,' stating that if a crypto service provider can override a client's authority, it is considered a custodian, even if it guarantees it will not exert that power. The FCA has requested feedback on these proposals until June 3, 2026, and intends to publish finalized rules and guidance later this year. 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, and permanent closures.