Exchange Functional Separation

Definition ∞ Exchange functional separation involves segmenting the distinct operational activities within a cryptocurrency exchange, such as custody, trading, and market making, into independent entities or departments. This organizational structure aims to mitigate conflicts of interest and enhance consumer protection by preventing a single entity from controlling multiple critical functions. It seeks to reduce risks associated with commingling client funds and proprietary trading activities. Such separation promotes greater transparency and accountability in exchange operations.
Context ∞ The concept of exchange functional separation is a significant discussion point in global cryptocurrency regulation and compliance. News frequently covers legislative proposals or regulatory actions that mandate or encourage this separation, particularly following major exchange failures or scandals. Implementing these divisions is viewed as a crucial step towards professionalizing the digital asset market and aligning it with traditional financial market standards, thereby increasing investor confidence.