UK's New Crypto Regulations: A 24-Hour Deadline That Could Catch Firms Off Guard

The UK's Financial Conduct Authority has proposed new crypto rules that could significantly 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 that firms handling clients' crypto assets need to be aware of. A key aspect of the rules is the 24-hour threshold for custody, where any firm or crypto 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 lead to the loss of their pure tech exemption, necessitating full approval for arranging staking. The FCA aims to strengthen consumer protections and support fair, transparent markets with these new regulations. Notably, the authority has addressed the issue of 'shadow custody' for the first time, clarifying that crypto service providers who can theoretically override a client's authority are considered custodians, even if they guarantee not to exert that power. The FCA has also set out rules for stablecoin issuers, mandating that issuance is only legal if the issuer is established in the UK and manages the entire lifecycle, from initial offering to redemption and reserve maintenance. The regulator is seeking views on these proposals until June 3, 2026, and intends to publish finalized rules in policy statements this summer, followed by the final perimeter guidance in September. The new regulations will 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 failure to meet this deadline may result in fines, suspensions, or permanent closures.