The UK’s Financial Conduct Authority (FCA) is proposing crypto rules that could quietly expand the definition of custody, and potentially hit platforms and software providers that don’t consider themselves custodians.
The FCA published its guidance on the scope of cryptoassets on Wednesday, which includes some technical pitfalls for firms managing clients’ crypto assets.
The rules draw a red line after 24 hours for police custody. Any crypto business, platform or application holding client assets for more than a day while trades are settled will likely fall under the regulated custodian classification, which triggers the requirement for a full backup license.
Validators and node operators should also proceed with caution. The regulator warned that those involved in these activities would lose their purely technological exemption as soon as they offered “value-added” features. This includes things like user dashboards, yields, or reward compounding tools. In these cases, they must seek full approval to arrange staking.
“Our new scope gives us the tools to strengthen consumer protection and support fair, transparent and orderly markets as the sector matures,” the FCA said in the document.
It is also worth noting that for the first time, the FC has addressed the issue of “ghost guarding”. The financial watchdog has made it clear that if a crypto service provider theoretically allows it to override a client’s authority, it is officially a custodian even if it guarantees it will never exercise that power.
“The fact that an agreement involves smart contracts, public blockchains or certain elements of decentralization does not determine the position of the scope and does not place the agreement outside of regulation,” the document notes.
For issuers of stablecoins, the mandate is equally brutal as it only considers issuance legal if the issuer is established in the UK and manages the entire lifecycle. This includes everything from the initial offering to the redemption and maintenance of reserves.
The FCA has requested 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 the finalized rules in policy statements this summer, followed by final scope guidance in September.
The roadmap requires all entities providing crypto services to move from current money laundering registration systems to a stricter approval regime under the UK’s Financial Services and Markets Act (FSMA).
Businesses that intend to continue operating under the new regulations face a five-month application window, from September 30 this year to February 28, 2027. Failure to meet this deadline exposes them to possible fines and suspensions as well as permanent closures.
Only those who apply during the application period will benefit from “savings provisions” that allow them to continue operating while the regulator deliberates.
