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

The UK's Financial Conduct Authority has introduced proposed crypto regulations that may broaden the definition of custody, potentially affecting platforms and software providers who 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 pure tech exemption and require full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair, transparent, and orderly 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 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 the new regime, and only those who apply during this period will be allowed to continue operating while the regulator reviews their applications.