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

The UK's Financial Conduct Authority has introduced proposed crypto regulations that could significantly broaden the definition of custody, potentially impacting platforms and software providers that do not currently identify as 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. Additionally, validators and node operators must exercise caution, as providing 'added value' features such as user dashboards or reward-compounding 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 crypto sector evolves. Notably, the regulator has addressed the 'shadow custody' issue, clarifying that crypto service providers who can theoretically override a client's authority are considered custodians, regardless of whether they intend to exert that power. The FCA has also set out specific requirements for stablecoin issuers, mandating that they must be established in the UK and manage the entire lifecycle of the stablecoin, from initial offering to redemption and reserve maintenance. The regulator 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 within the designated five-month window, from September 30, 2026, to February 28, 2027, risk facing fines, suspensions, and potential closure.