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

The UK's Financial Conduct Authority has introduced 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 for firms handling client crypto assets. According to the rules, any firm 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 necessitate seeking approval for arranging staking. The FCA has stated that its new perimeter is designed to strengthen consumer protections and support fair, transparent, and orderly markets as the sector matures. Notably, the regulator has addressed the 'shadow custody' issue, clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, regardless of whether it exercises that power. The FCA has also set out requirements for stablecoin issuers, mandating that they must be established in the UK and manage the entire lifecycle of the stablecoin. The regulator is seeking feedback on these proposals until June 3, 2026, and intends to publish finalized rules later this summer. The new regulations will require 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 that fail to apply for approval during the designated five-month window may face fines, suspensions, or permanent closures.