UK's New Crypto Regulations: A 24-Hour Timeframe That Could Catch Firms Off Guard

The UK's Financial Conduct Authority has introduced new crypto regulations that may broaden the definition of custody, potentially affecting platforms and software providers who 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 threshold for custody, where any firm or crypto platform 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 they may lose their exemption if they provide 'added value' features such as user dashboards or yield tools, and must seek approval for arranging staking. The FCA aims to strengthen consumer protections and support fair markets with these new rules. The regulator has also addressed 'shadow custody' for the first time, stating that if a crypto service provider can override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. Stablecoin issuers are only permitted to operate if they are established in the UK and manage the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA is seeking feedback on these proposals until June 3, 2026, and plans to publish finalized rules in the 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 approval, and only those who apply during this period will be allowed to continue operating while the regulator reviews their application.