UK's New Crypto Regulations May Catch Firms Off Guard

The UK's Financial Conduct Authority has proposed new 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 client crypto assets. Any firm holding client assets for more than 24 hours 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 could lead to the loss of their tech exemption. The regulator has addressed the 'shadow custody' issue, stating that if a crypto service provider can override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. The FCA has requested feedback on these proposals, which will be followed by the publication of 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, with a five-month application window starting from September 30, 2026.