Definition ∞ Legal Separation, in a financial context, refers to the establishment of distinct legal entities or structures to segregate assets, liabilities, or operational functions. For digital asset firms, this often involves separating client funds from company operating capital. This practice aims to protect customer assets in the event of a firm’s insolvency or other financial distress.
Context ∞ The principle of Legal Separation is a recurring topic in regulatory discussions and news concerning digital asset exchanges and custodians. Following incidents of platform failures, calls for stricter requirements around asset segregation become more prominent. Regulators frequently advocate for clear legal distinctions to enhance consumer protection and reduce systemic risk within the digital asset ecosystem.
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