Key Points
- Britain’s financial watchdog launched consultation paper CP26/38 on October 23, 2026, seeking views on revisions to its Financial Crime Guide.
- The proposed guidance identifies enhanced scrutiny of transactions involving self-custody crypto wallets as best practice.
- Regulators criticize reliance on unexplainable third-party risk assessment tools that firms cannot justify with evidence.
- Inflexible transaction tracing policies that disregard actual risk levels are flagged as problematic approaches.
- The proposed guidance carries no legal force, with industry comments requested by December 24, 2026.
The United Kingdom’s Financial Conduct Authority has unveiled draft guidance addressing how regulated entities should handle cryptocurrency transactions originating from self-custody wallets. The proposed changes form part of broader revisions to the agency’s Financial Crime Guide.
The watchdog initiated consultation CP26/38 on October 23, 2026. Industry participants have until December 24, 2026, to submit their views on the proposed modifications.
The draft framework identifies additional verification measures for self-custody wallet transactions as best practice. It simultaneously warns against depending on risk assessment tools that firms cannot adequately explain or support with documentation.
Regulatory Approach to Self-Custody Wallets
Self-custody wallets—also known as unhosted wallets—are cryptocurrency storage solutions where individuals maintain direct control of their private keys, without intermediary oversight from exchanges or service providers.
The draft provision FCG 3.2.8 identifies enhanced due diligence for transactions involving these wallets as an illustration of sound compliance practice. Enhanced due diligence refers to more rigorous verification procedures beyond standard protocols.
In operational terms, this guidance concerns the processes UK-regulated entities employ when customers deposit cryptocurrency from personal wallets. The emphasis falls on the recipient firm’s verification procedures.
The guidance maintains an advisory status. The FCA clarifies that the Guide establishes no formal rules and imposes no fresh regulatory obligations.
Nonetheless, the regulator anticipates firms will review and incorporate the Guide when designing their compliance frameworks. Failure to follow the guidance would not automatically constitute a violation of FCA regulations.
Assessment Tools and Transaction Monitoring
The proposals address how regulated entities make determinations about cryptocurrency transfers. Draft provision FCG 3.2.5 identifies a particular compliance shortcoming.
This deficiency involves deploying third-party analytical technology without the capability to justify or document how such systems generate their conclusions or risk ratings. The FCA emphasizes that firms retain ultimate accountability for compliance regardless of outsourced technology use.
The draft guidance also questions inflexible policies governing how many transaction “hops”—successive transfer stages—a firm investigates. The FCA’s concern centers on monitoring protocols that overlook risk assessment, rather than opposing numerical thresholds per se.
These proposals supplement current obligations. Under the UK Travel Rule, cryptocurrency enterprises have been required to gather, authenticate and transmit transfer information since September 1, 2023.
The consultation extends beyond digital assets. Additional proposed modifications address fraud prevention, sanctions enforcement, proliferation financing, data protection, money laundering prevention and terrorism financing.
The cryptocurrency provisions aim to accommodate a new UK regulatory framework commencing in October 2027. The FCA states it intends the Guide to address emerging threats associated with artificial intelligence, crypto assets and evolving sanctions landscapes.
The regulator anticipates minimal increases to compliance burdens or consumer expenses from the updates. It characterizes the modifications as clarifying current expectations and codifying established industry practices.
The consultation encompasses all entities the FCA oversees for financial crime prevention. This includes cryptocurrency businesses registered under the Money Laundering Regulations framework.
Firms and interested stakeholders may submit responses via an online submission form or electronic mail through December 24, 2026. The FCA will subsequently publish collected feedback alongside the finalized Guide text in a Policy Statement, though no publication date has been announced.
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