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 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 recently, outlines several technical traps for firms handling client crypto assets. A key aspect of the rules is the 24-hour threshold for custody, where any firm 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 or yield tools may necessitate seeking 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 crypto service providers allowing theoretical overrides of client authority are considered custodians, even if they guarantee not to exert that power. For stablecoin issuers, the rules mandate that 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 feedback on these proposals until June 3, 2026, and intends to publish finalized rules later 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 system 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 the new regime, and only those who apply during this period will be allowed to continue operating while the regulator deliberates.