Individual federation members cannot, but the federation (entity) as a whole can. Challenge would be to convince whichever regulator that there isn't such a thing as "a single federation" and the key holders are just a bunch of unco-ordinated randos? If you can pull that off, then sure you're probably all clear

Also even if it isn't "custody", there's probably some other classification they can try to slap you with: e-money issuers, Virtual Asset Service Provider etc.

I think the point here is the user loses control of the original funds, the federation takes control of funds, and it's unclear whether a federation made up of known members will be able to withstand a regulatory attack.