The U.K.’s Financial Conduct Authority (FCA) has proposed new crypto regulations that might unexpectedly extend the definition of custody, potentially bringing platforms and software providers under its purview even if they do not see themselves as custodians.
Released on Wednesday, the FCA’s Cryptoasset Perimeter Guidance outlines several technical challenges for entities managing clients’ crypto assets. A critical aspect of these rules is the 24-hour threshold for custody; any entity holding client assets beyond this period during trade settlement may be classified as a regulated custodian, necessitating a full safeguarding license.
Validators and node operators should also tread carefully. The regulator has stated that those involved in these activities will forfeit their tech exemption if they offer “added value” features like user dashboards or yield tools, requiring them to obtain complete approval for arranging staking.
“Our new perimeter equips us with the necessary tools to bolster consumer protections and foster fair, transparent, and orderly markets as this sector evolves,” declared the FCA in its publication.
The guidance also marks the first time the FCA has tackled “shadow custody.” It clarified that a crypto service provider becomes a custodian if it theoretically overrides a client’s control, regardless of assurances against exercising such power.
“The use of smart contracts, public blockchains, or elements of decentralization does not determine regulatory status,” the document emphasized.
For stablecoin issuers, regulations are unequivocal: issuance is only lawful when the issuer operates within the U.K. and oversees the entire lifecycle, from offering to redemption and reserve management.
The FCA invited feedback on these proposals until June 3, 2026, as stated in a separate announcement Wednesday. The regulator plans to release finalized rules this summer with full guidance following in September.
Entities providing crypto services will have to transition from the existing money-laundering registration system to a stricter approval regime under the U.K.’s Financial Services and Markets Act (FSMA).
Firms wishing to remain operational must submit applications between Sept. 30 this year and Feb. 28, 2027; failure to do so may result in fines, suspensions, or permanent closure.
Only those applying within this window will qualify for “savings provisions,” allowing them continued operation pending regulatory review.