UK Crypto Regulations: Hidden Traps for Unwary Firms

The UK's Financial Conduct Authority has unveiled proposed crypto regulations that may broaden the definition of custody, potentially ensnaring 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 provision draws a line at the 24-hour mark for custody, with any firm holding client assets for more than a day during trade settlement likely to 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 trigger the need for full approval for arranging staking. The FCA has introduced a new perimeter to enhance consumer protections and support fair, transparent markets as the sector evolves. Notably, the regulator has addressed 'shadow custody,' clarifying that a crypto service provider is considered a custodian if it can theoretically override a client's authority, even if it guarantees it will never exert that power. For stablecoin issuers, the rules are equally clear: issuance is only legal if the issuer is established in the UK and manages the entire lifecycle, including initial offering, redemption, and reserve maintenance. The FCA is seeking feedback 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 will 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 wishing 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.