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

The UK's Financial Conduct Authority has unveiled proposed crypto regulations that could significantly broaden the definition of custody, potentially ensnaring platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, highlights several technical traps that firms handling client crypto assets must be aware of. A key aspect of the rules is the 24-hour threshold for custody, where any firm or crypto platform holding client assets for more than a day during trade settlement may be classified as a regulated custodian, necessitating a full safeguarding license. Validators and node operators must also exercise caution, as they risk losing their exemption from regulation if they provide 'added value' features such as user dashboards or yield tools. In such cases, they must obtain full approval for arranging staking. The FCA aims to 'strengthen protections for consumers and support fair, transparent, and orderly markets' with its new perimeter. Notably, the regulator has addressed the issue of 'shadow custody' for the first time, clarifying that crypto service providers who can theoretically override a client's authority are considered custodians, even if they guarantee not to exert that power. The FCA has also set out requirements for stablecoin issuers, mandating that they be established in the UK and manage the entire lifecycle of the stablecoin. The regulator is seeking feedback on these proposals until June 3, 2026, and plans 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 that intend to continue operating under the new regulations have a five-month application window, from September 30, 2026, to February 28, 2027, and those who apply during this period will be allowed to continue operating while the regulator reviews their applications.