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

The UK's Financial Conduct Authority has unveiled 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 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. 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, transparent markets with these new regulations. Notably, the authority has addressed the 'shadow custody' issue, 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. The FCA has requested feedback on these proposals, with a consultation period ending on June 3, 2026, and intends to publish finalized rules and perimeter 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 must apply for approval within a five-month window, from September 30, 2026, to February 28, 2027, to avoid potential penalties and maintain operational continuity.