What Regulatory Differences Exist for Custodial and Non-Custodial Derivatives Exchanges?

Custodial derivatives exchanges are typically subject to stricter regulatory oversight. Because they hold customer funds, they are often classified as money transmitters or qualified custodians and must comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.

Non-custodial exchanges, on the other hand, often exist in a regulatory gray area. Since they do not take custody of user assets, they may not be subject to the same level of financial regulation, though this is a rapidly evolving legal landscape.