UK Crypto Regulations: Hidden Pitfalls for Unwary Firms

The UK's Financial Conduct Authority has introduced proposed crypto regulations that may expand the definition of custody, potentially affecting platforms and software providers that do not consider themselves custodians. The recently published Cryptoasset Perimeter Guidance outlines several technical complexities 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 regulator has introduced measures to strengthen consumer protections and support fair markets, including addressing 'shadow custody' and stablecoin issuance. The FCA has requested feedback on these proposals, with a consultation period ending on June 3, 2026, and plans to publish finalized rules and guidance later this year. The new regulations will require entities providing crypto services to transition to a stricter approval regime under the Financial Services and Markets Act, with a five-month application window from September 30, 2026, to February 28, 2027.