The UK’s Financial Conduct Authority (FCA) is proposing crypto rules that could quietly expand the definition of custody, potentially encompassing platforms and software providers that are not considered custodians.
The FCA published its Crypto Asset Perimeter Guidance on Wednesday, which includes some technical pitfalls for firms handling customers’ crypto assets.
The rules draw a red line at the 24-hour mark for custody. Any crypto company, platform or application that holds client assets for more than one day during trade settlement will likely fall under the regulated custodian classification, which requires a full protection license.
Validators and node operators should also proceed with caution. The regulator warned that those involved in those activities will lose their purely technological exemption the moment they provide “value-added” features. That includes things like user dashboards, performance, or reward matching tools. In those cases, they must seek full approval to arrange the bet.
“Our new perimeter gives us the tools to strengthen consumer protection and support fair, transparent and orderly markets as the sector matures,” the FCA stated in the document.
It is also noteworthy that, for the first time, the FC has addressed the issue of “shadow custody”. The financial watchdog made it clear that if a crypto service provider theoretically allows you to override a client’s authority, you are officially a custodian even if you guarantee you will never exercise that power.
“The fact that an agreement involves smart contracts, public blockchains or some elements of decentralization does not determine the position of the perimeter or place the agreement outside of regulation,” the document states.
For stablecoin issuers, the mandate is equally strong, considering issuance legal only if the issuer is established in the United Kingdom and manages the entire lifecycle. That includes everything from the initial offer to redemption and maintaining reserves.
The FCA has asked for views on these proposals until the consultation closes on June 3, 2026, it said in a separate statement on Wednesday. The regulator intends to publish finalized rules in policy statements this summer, followed by final perimeter guidance in September.
The roadmap obliges all entities providing crypto services to transition from current money laundering registration systems to a stricter approval regime under the UK Financial Services and Markets Act (FSMA).
Businesses intending to continue operating under the new regulations face a five-month application period, from September 30 of this year to February 28, 2027. Failure to meet this deadline exposes them to potential fines and suspensions, as well as permanent closures.
Only those who apply during the application period will benefit from so-called “savings provisions” that will allow them to continue operating while the regulator deliberates.
