UK's New Crypto Regulations May Catch Firms Off Guard

The UK's Financial Conduct Authority has introduced new crypto regulations that may broaden the definition of custody, potentially affecting platforms and software providers that do not consider themselves custodians. The Cryptoasset Perimeter Guidance, published on Wednesday, 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 or 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. The regulator has addressed the 'shadow custody' issue, stating that if a crypto service provider can theoretically override a client's authority, it is considered a custodian, even if it guarantees not to exert that power. The FCA has also clarified that stablecoin issuance is only legal if the issuer is established in the UK and manages the entire lifecycle, including initial offering, redemption, and reserve maintenance. The regulator is seeking feedback on these proposals until June 3, 2026, and intends to publish finalized rules 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 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 the regulator deliberates.