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

The UK's Financial Conduct Authority has unveiled proposed crypto regulations that could broaden 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 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. Notably, the regulator has addressed the 'shadow custody' issue, clarifying that a crypto service provider is considered a custodian if it can theoretically override a client's authority, even if it guarantees not to exert that power. The guidance also outlines requirements for stablecoin issuers, mandating that they be established in the UK and manage the entire lifecycle of the stablecoin. The FCA is seeking feedback on these proposals until June 3, 2026, and plans to publish finalized rules later 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 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 the new regime, and only those who apply during this period will be able to continue operating while the regulator reviews their applications.