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

The UK's Financial Conduct Authority has introduced proposed crypto regulations 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, outlines several technical pitfalls that firms handling client crypto assets must be aware of. 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. Furthermore, validators and node operators must exercise caution, as providing 'added value' features such as user dashboards or yield tools may necessitate seeking full approval for arranging staking, thus losing their pure tech exemption. The FCA aims to enhance consumer protections and support fair, transparent markets with these new regulations. Notably, the guidance addresses 'shadow custody' for the first time, 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. Stablecoin issuers are also subject to strict requirements, with issuance only being considered legal if the issuer is established in the UK and manages the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA is seeking feedback on these proposals until June 3, 2026, and intends to publish finalized rules and guidance later this year. The new regulations will 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 eligible for 'savings provisions' allowing them to continue operating while their applications are being processed.