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 could significantly broaden the scope of what constitutes custody, potentially affecting platforms and software providers that do not currently consider themselves custodians. The recently published Cryptoasset Perimeter Guidance outlines several technical pitfalls 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 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 providing 'added value' features such as user dashboards or yield tools may require full approval for arranging staking, thereby removing their exemption as pure technology providers. The FCA has introduced measures to strengthen consumer protections and support fair market practices as the crypto 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. For stablecoin issuers, the rules stipulate that issuance is only permissible if the issuer is established in the UK and manages the entire lifecycle, 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 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 more stringent approval regime under the UK's Financial Services and Markets Act. Firms have a five-month window, from September 30, 2026, to February 28, 2027, to apply for approval, and only those who apply during this period will be eligible for 'savings provisions' that allow them to continue operating while their application is being reviewed.