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

The UK's Financial Conduct Authority has introduced proposed crypto regulations that may broaden the definition of custody, potentially encompassing platforms and software providers that do not identify as custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines several technical traps for firms handling client 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 necessitate seeking approval for arranging staking. The regulator has emphasized that its new perimeter is designed to enhance consumer protections and support fair 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 intends to exert that power. The guidance also stipulates that stablecoin 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 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 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 that fail to apply during the designated five-month window, from September 30, 2026, to February 28, 2027, risk facing fines, suspensions, and potential closures.