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 broadly redefine custodianship, potentially impacting platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published on Wednesday, outlines several technical traps for firms handling client crypto assets. A key provision draws a line at the 24-hour mark, 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 emphasized its commitment to strengthening consumer protections and promoting fair, transparent markets. Notably, the FCA has addressed the issue of 'shadow custody,' clarifying that crypto service providers who can theoretically override a client's 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 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 that fail to apply during the designated five-month window may face fines, suspensions, and permanent closures.