UK's New Crypto Regulations May Catch Firms Off Guard

The UK's Financial Conduct Authority has introduced 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 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 providing 'added value' features such as user dashboards or yield tools may necessitate seeking approval for arranging staking. The FCA aims to strengthen consumer protections and support fair, transparent markets with these new regulations. Additionally, the authority 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 FCA has also set out rules for stablecoin issuers, mandating that they must be established in the UK and manage the entire lifecycle of the stablecoin. The regulator is seeking feedback on these proposals until June 3, 2026, and intends to publish finalized rules later this year. The new regulations will require all entities providing crypto services to transition from the current money-laundering registration system to a more stringent approval regime under the UK's Financial Services and Markets Act. Firms that fail to apply for approval during the designated five-month window may face penalties, including fines and suspensions.