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, highlights 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 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 result in the loss of their tech exemption and require approval for arranging staking. The regulator has emphasized that its new perimeter is designed to strengthen consumer protections and support fair, transparent, and orderly markets. Notably, the FCA has addressed the issue of 'shadow custody,' clarifying that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, regardless of whether it guarantees not to exert that power. The proposals also introduce new requirements for stablecoin issuers, mandating that they must 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 intends to publish finalized rules and perimeter guidance later this year. The new regulations will require all entities providing crypto services to transition to a stricter approval regime under the UK's Financial Services and Markets Act, with a five-month application window from September 30, 2026, to February 28, 2027.