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

The UK's Financial Conduct Authority has introduced proposed crypto regulations that could significantly 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 that firms handling clients' 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 they will lose their exemption if they provide 'added value' features such as user dashboards or yield tools, and must seek approval for arranging staking. The regulator has stated that its new perimeter will strengthen consumer protections and support fair, transparent, and orderly markets as the sector matures. Notably, the FCA has addressed the 'shadow custody' issue, clarifying that if a crypto service provider can override a client's authority, it is considered a custodian, even if it guarantees it will never exert that power. The document also notes that the use of smart contracts, public blockchains, or decentralization elements does not determine the perimeter position or place the arrangement outside of regulation. For stablecoin issuers, the rules are clear: issuance is only 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 views 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 new regulations 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 have a five-month application window, from September 30, 2026, to February 28, 2027, to apply for approval, and only those who apply during this period will benefit from 'savings provisions' that allow them to continue operating while the regulator deliberates.