Segregated Custody

Overview

Segregation can be legal, accounting, operational, on-chain, or a combination. Assets may be held in individually titled accounts or distinct wallets, while records and contracts identify the beneficial owner and restrict custodian use.

A unique address alone does not prove legal segregation, and an omnibus account can sometimes provide legally recognized client segregation through records. Conversely, internal labels may fail during insolvency if title, agreements, liens, or asset use conflict with the claimed structure.

Clients should review account title, ownership, reuse or lending rights, sub-custodians, insolvency treatment, statements, and withdrawal procedures. Custodians need reliable subledgers and independent reconciliation. Technical controls should prevent cross-client movement without authorization. Evidence should connect each client’s claim to controlled assets and legal documentation.

For Segregated Custody, risks include key compromise, insider abuse, commingling, inaccurate books, unsupported tokens, provider insolvency, sub-custodian failure, blocked withdrawals, lost recovery material, and ambiguous liability. For Segregated Custody, controls should combine least privilege, separation of duties, verified destinations, asset segregation, limits, monitoring, and continuity tests.

Records for Segregated Custody should reconcile on-chain or provider balances with customer entitlements and the internal ledger by asset, network, account, and cutoff. For Segregated Custody, pending deposits, locked assets, staking, fees, conversions, forks, unsupported transfers, and manual adjustments require separate treatment and review.

Segregated Custody should be distinguished from investment ownership and from a software interface. For example, a provider may display an asset balance while holding pooled assets through another custodian; operations must verify contractual rights, segregation, withdrawal capability, and external evidence rather than rely on the screen alone.