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 significantly expand 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 clients' crypto assets. A key aspect of the rules is the 24-hour mark for custody, where any firm or platform holding client assets for more than a day during trade settlement may be classified as a regulated custodian, requiring a full safeguarding license. Additionally, validators and node operators must exercise caution, as providing 'added value' features such as user dashboards or yield tools may lead to the loss of their pure tech exemption, necessitating full 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 override of a client's authority are considered custodians, even if they guarantee not to exert that power. The FCA has also outlined requirements for stablecoin issuers, mandating that they be established in the UK and manage the entire lifecycle of the stablecoin. A consultation period is currently open, with the FCA seeking views on these proposals until June 3, 2026. Finalized rules are expected to be published in the summer, followed by the final perimeter guidance in September. 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. Firms intending to continue operating under the new regulations have a five-month application window, from September 30, 2026, to February 28, 2027, and only those who apply during this period will be eligible for 'savings provisions' allowing them to continue operating while the regulator reviews their application.