The UK’s Financial Conduct Authority (FCA) is proposing cryptocurrency rules that could quietly expand the definition of custody, potentially sweeping in platforms and software providers that don’t consider themselves custodians.
The FCA published Cryptoasset Boundary Guidance on Wednesday, which includes a number of technical pitfalls for firms handling clients’ cryptoassets.
The rules draw a red line within the 24-hour detention period. Any firm or cryptocurrency platform or application that holds customer assets for more than one day during trade settlement may fall into the regulated custodian category, which triggers the requirement for a full protection license.
Validators and node operators also need to exercise caution. The regulator warned that those involved in these activities would lose purely technical exemptions once they provide “value-added” functionality. This includes user dashboards, earnings or reward compounding tools, and more. In these cases, they must seek full approval before arranging the pledge.
“As the industry matures, our new boundaries provide us with the tools to strengthen consumer protection and support fair, transparent and orderly markets,” the FCA said in the document.
It is also worth noting that FC has solved the “shadow hosting” problem for the first time. The financial regulator made it clear that a cryptocurrency service provider officially becomes a custodian if it is theoretically allowed to override the power of its customers, even if it guarantees that it will never exercise such power.
“The fact that an arrangement involves smart contracts, a public blockchain or certain elements of decentralization does not determine peripheral position or place the arrangement outside regulation,” the document states.
The order is equally blunt for stablecoin issuers, as it will only consider an issue legal if the issuer is established in the UK and manages the entire life cycle. This includes everything from initial issuance to redemptions and reserve maintenance.
In a separate statement on Wednesday, the FCA said it was seeking views on the proposals before the consultation ends on June 3, 2026. Regulators intend to issue the final rule in a policy statement this summer, followed by final peripheral guidance in September.
The roadmap forces all entities providing crypto services to transition from the current money laundering registration system to a stricter approval regime under the UK Financial Services and Markets Act (FSMA).
Companies intending to continue operating under the new rules face a five-month application window from September 30 this year to February 28, 2027. Missing this deadline could result in them facing fines, suspension of business, and permanent closure.
Only businesses that apply during the application period can benefit from so-called “savings clauses” that allow them to continue operating while the regulator is deliberating.
