The Law and Macroeconomics of Custody and Asset Segregation Rules: Defining the Perimeters of Crypto-Banking

38 Pages Posted: 5 Apr 2022

See all articles by Hossein Nabilou

Hossein Nabilou

University of Amsterdam, Amsterdam Law School; The International Institute for the Unification of Private Law (UNIDROIT)

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Date Written: April 4, 2022


Custody - simply defined as holding securities or funds on behalf of third parties – is one of the key institutions that defines and distinguishes major financial institutions in the financial system. However, custody rules in financial law have traditionally been studied as a microprudential tool for investor protection purposes, while their macroeconomic impact has largely been overlooked. Inspired by the literature on asset custody and its impact on the institutional design of the traditional financial markets, institutions, and infrastructures, this paper studies the potential impact of defining custody rules in the cryptoasset markets on the future developments of the cryptoasset ecosystem. In traditional finance, a survey of relevant regulations applicable to financial institutions shows that the custody rules and client asset (segregation) rules apply to all financial institutions, other than commercial banks’ core business activity (i.e., deposit-taking). The most salient impact of exempting deposit contracts from custody and client asset rules has been the emergence of a business model for banks that treat their clients’ funds as their own and use them for their own accounts. Comingling clients’ funds with that of the bank is a critical defining feature of the banking industry that differentiates it from non-bank financial institutions as well as non-financial firms, and positions banks at the heart of monetary systems. The custody and asset segregation rules can play the same important role in the future developments of the crypto-asset industry. To delineate the scope of crypto-banking and differentiate it from other types of cryptoasset services, such as exchange and custodial services, it is crucial to start from the custody and asset segregation rules. This paper advocates for a presumption of custody when a client does not self-custody his cryptoassets, giving (or sharing) the control of the assets to a third party. It argues that such a presumption not only would serve the objectives of investor protection but also could prevent excessive credit creation in the cryptoasset ecosystem and the potential risk spillovers to the conventional financial markets and the real economy.

Keywords: Custody, asset segregation, cryptoassets, cryptocurrency, crypto-banking

JEL Classification: E42, E51, F3, E58, G01, G23, G28, K22, K23, K24

Suggested Citation

Nabilou, Hossein, The Law and Macroeconomics of Custody and Asset Segregation Rules: Defining the Perimeters of Crypto-Banking (April 4, 2022). Amsterdam Law School Research Paper No. 2022-09, Amsterdam Center for Law & Economics Working Paper No. 2022-03, Available at SSRN: or

Hossein Nabilou (Contact Author)

University of Amsterdam, Amsterdam Law School ( email )

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1001 ND
Amsterdam, Noord-Holland 1001 ND


The International Institute for the Unification of Private Law (UNIDROIT) ( email )

Via Panisperna 28
Rome, 00184

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