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 could broaden the definition of custody, potentially affecting platforms and software providers who do not consider themselves custodians. The FCA's Cryptoasset Perimeter Guidance, published recently, outlines 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 crypto 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 they will lose their exemption if they provide 'added value' features such as user dashboards or yield tools, and must instead seek approval for arranging staking. The FCA has stated that its new perimeter will 'strengthen protections for consumers and support fair, transparent and orderly markets' as the sector matures. Notably, the regulator has addressed the issue of 'shadow custody,' making it clear 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. For stablecoin issuers, the rules are equally straightforward, requiring them to be established in the UK and manage the entire lifecycle, from initial offering to redemption and reserve maintenance. The FCA is seeking feedback on these proposals until June 3, 2026, and plans 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 intend to continue operating under the new regulations have a five-month application window, from September 30, 2026, to February 28, 2027, and those who miss this deadline may face fines, suspensions, or permanent closure. Only firms that apply during this period will be eligible for 'savings provisions' that allow them to continue operating while the regulator reviews their application.