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 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 client 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 reward-compounding tools, may lead to the loss of their pure tech exemption and require full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair, transparent, and orderly markets with these new regulations. Notably, the financial watchdog has addressed the 'shadow custody' issue, clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. The rules also mandate that stablecoin issuers must be established in the UK and manage the entire lifecycle of the stablecoin, from initial offering to redemption and reserve maintenance. The FCA has requested 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 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 that intend to continue operating under the new regulations have a five-month application window, from September 30, 2026, to February 28, 2027, and missing this deadline may result in fines, suspensions, or permanent closures. Only firms that apply during this period will benefit from the 'savings provisions' that allow them to continue operating while the regulator reviews their applications.