What is segregation of customer assets?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
Segregation means keeping customer assets apart from the firm's own. Japanese crypto exchanges are required to do it: cash is protected through a trust, and crypto is held separately from the firm's own holdings. The point is to improve the odds that customers get their assets back if the firm fails.
Key points
- Customer assets are held apart from the firm's own balance sheet
- Customer cash is protected through a trust arrangement
- Customer crypto is kept distinct from the firm's own holdings
- It improves the chance of recovery if the firm collapses
Definition
Holding the money and crypto entrusted by customers separately from the firm's own property. If the two are commingled, no one can identify each customer's share when the firm fails.
Assets left on an exchange belong to you on the books, but the firm holds the keys and the bank accounts. Kept in the same account as working capital, they would be swept up to pay creditors if the business ran aground. Segregation exists to prevent that.
In Japan, customer cash is protected through a trust and customer crypto must be held apart from the firm's own. Alongside that, a substantial part of the crypto held for customers must be kept in an environment cut off from the internet.
This is checked through external audits and reporting, not just bookkeeping. It is still not a promise that nothing can be lost — hacks and operational mistakes remain possible — so moving long-term holdings into a wallet you control is worth considering.
Watch out for
- · Segregation does not mean an immediate, full return if the firm fails
- · Overseas services may have no equivalent arrangement at all
- · The required methods change with the law, so check current FSA material