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

The UK's Financial Conduct Authority has proposed new crypto regulations that could 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, outlines several technical traps that firms handling clients' crypto assets must watch out for. 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, 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 regulator has stated that its new perimeter is designed to strengthen consumer protections and support fair, transparent markets as the sector evolves. Notably, the FCA 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, even if 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 their stablecoins to operate legally. The FCA has invited 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 that intend to continue operating under the new regulations will have a five-month application window, from September 30, 2026, to February 28, 2027, and those that miss this deadline may face fines, suspensions, or permanent closures.