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 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 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 necessitate seeking approval for arranging staking. The regulator has emphasized the importance of strengthening consumer protections and supporting fair, transparent, and orderly markets as the sector evolves. 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. For stablecoin issuers, the rules are clear: issuance is only permissible if the issuer is established in the UK and manages the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA has requested feedback on these proposals, with a consultation period ending on June 3, 2026. Finalized rules are expected to be published 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 system to a more stringent 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 approvals, and only those who apply during this period will be allowed to continue operating while the regulator reviews their applications.