UK's New Crypto Regulations May Catch Off-Guard Firms in a 24-Hour Custody Trap

The UK's Financial Conduct Authority has proposed new crypto regulations that could broaden the definition of custody, potentially encompassing platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical traps for firms handling clients' crypto assets. A key aspect of the rules is the 24-hour threshold for custody, where any firm or crypto 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, yields, or reward-compounding tools may lead to the loss of their pure tech exemption, necessitating full approval for arranging staking. The FCA's new perimeter aims to strengthen consumer protections, support fair and transparent markets, and address the 'shadow custody' issue, where a crypto service provider can theoretically override a client's authority. Stablecoin issuers are also subject to stringent requirements, with issuance only considered legal 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 stricter approval regime under the UK's Financial Services and Markets Act, with a five-month application window from September 30, 2026, to February 28, 2027.