UK's New Crypto Regulations May Catch Firms Off Guard

The UK's Financial Conduct Authority has introduced new crypto rules that may broaden the definition of custody, potentially affecting platforms and software providers who do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published on Wednesday, highlights 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 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, requiring full approval for arranging staking. The FCA has stated that its new perimeter will strengthen consumer protections and support fair, transparent, and orderly markets as the sector matures. Notably, the regulator 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, even if it guarantees it will never exert that power. The FCA has requested feedback 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 wish 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.