UK's New Crypto Regulations: A Potential Pitfall for Unprepared Businesses

The UK's Financial Conduct Authority has introduced proposed crypto regulations that may 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, highlights several technical complexities 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 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 yield tools may lead to a loss of exemption and require full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair markets with these new regulations. Notably, the guidelines address 'shadow custody' and stablecoin issuance, emphasizing that only UK-based issuers managing the entire lifecycle of stablecoins will be considered legal. The FCA is seeking feedback on these proposals until June 3, 2026, and plans to publish finalized rules later this summer. All entities providing crypto services must transition from the current money-laundering registration system to a stricter approval regime under the Financial Services and Markets Act, with a five-month application window from September 30, 2026, to February 28, 2027.