Custody Segregation

Overview

Custody Segregation is the separation of customer or beneficial-owner assets from a custodian’s own assets and, where required, from assets of other customers, affiliates, or legal entities. The control exists to protect customer or beneficial-owner assets and maintain clear legal, accounting, operational, and technical separation from unauthorized use or provider failure. It is one component of client asset safeguarding and does not by itself guarantee accurate records, legal enforceability, or secure key control. It should be interpreted alongside Client Asset Safeguarding because the concepts can affect the same decision without representing the same control, event, or risk.

The workflow identifies ownership, custody structure, wallets or accounts, subledger records, transfer authority, key controls, third parties, fees, and reconciliation. Movements require authenticated instructions, appropriate approval, policy checks, and confirmation in both custody and accounting records. In this context, a sound model defines account and wallet structure, beneficial ownership, subledger mapping, reconciliation, transfer authority, fee movements, insolvency treatment, third-party custody, disclosures, and remediation of breaks.

It should connect the term to Commingling Risk where that relationship changes access, transaction treatment, investigation, communication, or recovery.

Records should preserve beneficial ownership, addresses or account identifiers, balances, movements, approvals, key or access events, reconciliations, breaks, fee deductions, third-party statements, disclosures, and remediation. Insolvency and return procedures should be documented and tested.

Useful measures include reconciliation breaks, unexplained movements, segregation exceptions, stale balances, concentration, unauthorized attempts, return time, third-party findings, key-control failures, and unresolved customer claims.

The relationship with Wallet Risk Assessment should be documented where it affects residual risk or control ownership.

A production treatment of Custody Segregation should test the separation of customer or beneficial-owner assets from a custodian’s own assets and, where required, from assets of other customers, affiliates, or legal entities within the relevant asset, decision, or service state. The Custody Segregation context record for separation of customer, where required, and from assets of other customers should preserve source data, configuration or policy version, responsible actor, exception, and outcome. Review of Custody Segregation should determine whether safeguards addressing separation of customer, where required, and from assets of other customers changed exposure in practice, not merely whether a document or setting existed.