UK Crypto Regulations: A 24-Hour Deadline 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 impacting platforms and software providers that do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical pitfalls for firms handling client crypto assets. A key aspect of the rules is the 24-hour threshold for custody, where any firm 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 lead to the loss of their tech exemption and necessitate full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair markets with these new regulations. Notably, the authority has addressed 'shadow custody' for the first time, clarifying that crypto service providers allowing theoretical override of client authority are considered custodians, even if they guarantee not to exert that power. Stablecoin issuers are also subject to stringent requirements, with issuance deemed legal only if the issuer is established in the UK and manages the entire lifecycle. The FCA has invited feedback on these proposals until June 3, 2026, and plans to publish finalized rules and guidance later this year. 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 allowed to continue operating while their applications are being processed.