Fund asset segregation is the practice of keeping a client’s assets separate from the assets of the financial institution holding them, as well as from the assets of other clients. This fundamental principle of financial regulation protects investors by ensuring that their holdings are not subject to the custodian’s creditors in case of insolvency. It applies across various asset classes, including traditional securities and digital assets. This separation provides a layer of security and trust for investors.
Context
In the context of digital assets, fund asset segregation presents unique operational and technological considerations due to the nature of cryptographic keys and blockchain addresses. Discussions often center on how to implement effective segregation on distributed ledgers while maintaining the benefits of digital ownership. Future developments will likely involve the creation of specialized on-chain mechanisms and clear regulatory guidance to ensure robust asset segregation practices for digital asset funds, enhancing investor protection.
The SEC's custody no-action relief operationalizes a path for RIAs and funds to engage state-level trust companies, mitigating systemic risk for digital asset portfolios.
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