Regulation
In one sentence
Client money held in accounts separate from the firm, so it cannot be used for the firm’s own operations and is identifiable if the firm fails.
Segregation is the mechanism behind most meaningful client protection. Without it, a deposit is an unsecured loan to a company, ranking alongside every other creditor if things go wrong.
It is standard at tier-one-regulated brokers and routinely absent at offshore venues, including a large share of crypto exchanges, where customer assets and company assets have historically been commingled.
The mistake it causes: keeping far more on a venue than the trade requires.
Client money held in accounts separate from the firm cannot legally be used for the firm's own operations, and it is identifiable as yours if the firm fails. Without segregation, a deposit is an unsecured loan to a company, ranking alongside every other creditor in an insolvency.
Every other protection depends on this one. A complaints process is of limited use if the money has already been spent.
| Venue type | Segregation |
|---|---|
| Tier-one regulated broker | Required |
| Offshore broker | Often absent or unverifiable |
| Regulated crypto venue | Varies by jurisdiction |
| Offshore crypto exchange | Frequently commingled |
Crypto is the weak point. Several major failures involved customer assets being mixed with company assets and used operationally, which is exactly what segregation is designed to prevent and exactly what nobody could verify beforehand.
A proof-of-reserves attestation shows assets at a moment in time. It does not show liabilities in full, it is not continuous, and it is not a legal ring-fence. It is better than nothing and considerably less than it sounds.
This term is explained in context in the primer .
Education only, not financial advice. Trading is high risk and most retail accounts lose money.
