Custody Segregation

Overview

What does Custody Segregation mean?

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.

How it works in practice

Custody segregation means keeping assets, legal entitlements or accounting positions distinguishable by owner, purpose or risk class. This may use separate on-chain wallets, subaccounts, dedicated ledgers, legal arrangements or some combination. Segregation must be defined precisely: a platform may track customers separately in its books while pooling coins at one address. The implementation should allow reconciliation of total controlled assets to each customer's claim and document whether those claims are enforceable in insolvency.

Further operational details

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.

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.

Limits and common misunderstandings

Separate user dashboards do not prove legal segregation, and separate addresses do not necessarily prevent an operator from mixing funds internally. Cross-collateralization, sweeping and treasury reuse can erode the intended boundary.

Related glossary terms

Client Asset Safeguarding; Commingling Risk; Wallet Risk Assessment