UK Crypto Regulations: New Rules May Catch Firms Off Guard

The UK's Financial Conduct Authority has introduced new 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 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 and require full approval for arranging staking. The FCA has emphasized that its new perimeter is designed to strengthen consumer protections and support fair, transparent markets as the sector evolves. Notably, the regulator has addressed the issue of 'shadow custody,' clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, regardless of whether it guarantees not to exert that power. The rules also provide guidance for stablecoin issuers, who must be established in the UK and manage the entire lifecycle of the stablecoin, 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 in the 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 have a five-month application window, from September 30, 2026, to February 28, 2027, to apply for approval, and those who miss this deadline may face fines, suspensions, or permanent closures. Only firms that apply during this period will be eligible for 'savings provisions' that allow them to continue operating while the regulator reviews their application.