> Yes they should. A deposit liability arises from the fact that they received an asset in a deposit transaction. Liabilities and assets aren't mutually exclusive in any transaction, and both must increase when you receive a customer's deposit, or else where does the liability come from?

Does a cash transporter count the contents of their armored vans as assets? Does DHL count the contents of their vehicles and warehouses as assets? Why should exchanges be different?

I know it's the law for exchanges to account custodial funds as assets (SAB121), but I don't see why it should be this way. In fact it seems to achieve the opposite of consumer protection.