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 significantly broaden the definition of custody, potentially impacting platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, highlights several technical traps that firms handling client crypto assets must watch out for. According to the rules, any firm or crypto platform holding client assets for more than 24 hours during trade settlement will likely 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, necessitating full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair, transparent 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 will be considered a custodian, regardless of whether it intends to exert that power. The FCA has requested feedback on these proposals, with a consultation period ending on June 3, 2026, and plans 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 systems to a stricter approval regime under the UK's Financial Services and Markets Act. Firms intending to continue operating under the new regulations will have a five-month application window, from September 30, 2026, to February 28, 2027, to apply for approval, with those who miss this deadline facing potential fines, suspensions, and permanent closures.