Client Assets
Client assets represent crypto or fiat funds belonging to customers, entrusted to a CASP, exchange, or custodian for safekeeping, trading, or other services, subject to strict regulatory protections ensuring preservation of ownership rights and preventing unauthorized use.
MiCA and UK FCA rules require safekeeping on trust or custodial basis, regular reconciliation and disclosures on holdings, and designation of oversight officers. EU Article 70 MiCA mandates CASPs to make adequate safekeeping arrangements to preserve ownership rights and prevent asset use without client consent. When CASPs delegate custody to third parties, the sub-custodian must be authorised for custody services, and the CASP remains liable for their activities.
Client asset protection frameworks require firms to maintain accurate records of client holdings, conduct daily reconciliation between client entitlements and assets held, obtain client consent before using assets for any purpose including lending or staking, and implement governance controls preventing commingling with firm's proprietary assets. Under MiCA Article 75(8), custodians are liable for client asset losses - including from cyber-attacks or system failures - capped at market value at time of loss.
EU vs UK Comparison
| Requirement | EU (MiCA) | UK (FCA) |
|---|---|---|
| Legal Basis | Article 70, 75 of Regulation (EU) 2023/1114 | CASS (Client Assets Sourcebook) |
| Segregation | Mandatory - distinct wallets, separate from firm assets | Mandatory - CASS 6 rules apply |
| Oversight Officer | Not specified in MiCA | CASS Operational Officer required (CASS 1A.3) |
| Liability for Loss | CASP liable - capped at market value at time of loss (Art. 75(8)) | Framework under development (2025-2026) |
| Client Consent | Explicit consent required before any use | Prime Brokerage Agreement or equivalent |
| Compensation Scheme | Not covered by EU investor protection | Not covered by FSCS |
Why It Matters
Enhanced protection standards apply to retail client assets compared to professional clients. Most crypto-assets fall outside traditional compensation schemes. Failures in client asset protection have been central to major crypto exchange collapses including FTX, where approximately $8.7 billion in client funds were misappropriated for proprietary trading and lending, highlighting the critical importance of robust asset segregation and safekeeping arrangements.
Deep Dive
For a comprehensive analysis of MiCA and UK CASS client asset protection requirements, including what the regulations don't explicitly say about sub-custody triggers, consent mechanisms, and insolvency protection, see: Client Asset Protection: What the Regulations Actually Require
Download: Client Assets Protection - 2026 Regulatory Briefing
A 4-page reference for compliance teams covering MiCA Article 70 & 75, UK FCA CASS requirements, and implementation checklists.
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