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

The UK's Financial Conduct Authority has introduced proposed crypto regulations that may broaden the definition of custody, potentially encompassing platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published on Wednesday, includes several technical traps that firms handling client crypto assets must navigate. 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 they will lose their exemption from regulation if they provide 'added value' features such as user dashboards or yield tools, and must instead seek approval for arranging staking. The FCA has stated that its new perimeter provides the tools to enhance consumer protection and support fair, transparent markets as the sector evolves. Notably, the regulator has addressed the issue of 'shadow custody' for the first time, clarifying that if a crypto service provider has the ability to override a client's authority, it is considered a custodian, even if it guarantees it will not exert that power. The document emphasizes that the use of smart contracts, public blockchains, or decentralized elements does not determine the regulatory perimeter or exempt an arrangement from regulation. Stablecoin issuers are also subject to strict requirements, with issuance only permitted 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 in policy statements this summer, followed by the final perimeter guidance in September. The roadmap requires all entities providing crypto services to transition from the current money-laundering registration system to a more stringent approval regime under the UK's Financial Services and Markets Act. Firms intending to continue operating under the new regulations have a five-month application window from September 30, 2026, to February 28, 2027, and failure to meet this deadline may result in fines, suspensions, or permanent closures. Only those who apply during the application period will be eligible for 'savings provisions' that allow them to continue operating while the regulator reviews their application.