Definition ∞ Segregation requirements mandate that financial institutions keep client assets separate from their own operational funds. This separation is a fundamental principle of investor protection, ensuring that client holdings are not commingled or used to satisfy the firm’s liabilities in the event of insolvency or financial distress. These rules typically specify how assets must be held, accounted for, and reported. Adherence to segregation requirements helps maintain trust and reduces counterparty risk for clients.
Context ∞ In the digital asset space, segregation requirements are a critical regulatory focus, particularly for cryptocurrency exchanges and custodians. Regulators are increasingly demanding clear proof of asset segregation to protect customer funds from operational risks and hacks. The lack of robust segregation in some past incidents has led to significant losses for users, driving calls for stricter enforcement and more transparent practices from digital asset service providers.
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