How Does the Jurisdiction of an Exchange Affect Its Counterparty Risk?

The jurisdiction in which an exchange is registered and operates has a major impact on its counterparty risk. A jurisdiction with a strong rule of law and robust financial regulations provides greater protection for users.

These regions typically have strict requirements for capital reserves, security standards, and the segregation of customer funds. In contrast, an exchange based in a jurisdiction with weak or unclear regulations may offer less legal recourse and a higher risk of loss in the event of insolvency or fraud.