Custodian

Understanding the Role of a Custodian

A custodian refers to a financial institution that is responsible for holding and safeguarding your financial assets. This can include money and other assets that are held by a brokerage firm, commercial bank, or a similar organization. The primary purpose of a custodian is to provide simplicity and protection for your assets.

Financial custodians, also known as bank custodians, have the physical authority to oversee various financial accounts, such as checking, savings, money market, and 401(k) accounts. When you deposit funds into any of these accounts, your checks are made payable and immediately deposited to your custodian, using your account number for reference.

In addition to the safekeeping of securities, custodians offer a range of services including transaction settlements, account management, collection of dividend and interest payments, foreign exchange transactions, and tax assistance. The costs associated with these services can vary depending on the specific requests of the clients. Some companies charge a quarterly fee based on the total value of the assets they hold.

Custodians are typically large and reputable organizations that are entrusted with the security of assets and securities worth millions or even billions of dollars. They can also be designated to handle the assets of a minor child. Investment advisory companies often rely on custodians to safeguard the funds they manage for their clients.

A custodian can be granted custody of assets through a power of attorney, which allows them to make decisions on behalf of the customer, such as changing investments or paying bills.

Some major custodian banks in the United States include The Bank of New York Mellon, JPMorgan Chase, and Citigroup. Internationally, well-known custodians include the Bank of China in Hong Kong, Credit Suisse and UBS in Switzerland, and Deutsche Bank in Germany.

In the realm of blockchain technology, custodial services primarily target institutional investors who hold significant amounts of cryptocurrency. In this context, custodians refer to exchanges that store cryptocurrency wallets on behalf of their customers.

Storing cryptocurrencies differs from traditional fiat currencies due to their digital nature. While physical banknotes can be stored and retrieved from wallets or safes, digital currencies like Bitcoin and Ethereum are stored and accessed through a blockchain. Cryptocurrency holders do not possess actual money, but rather the keys to blockchain addresses that represent their cryptocurrency holdings. Digital custodians in the cryptocurrency space refer to the software, hardware, or hot wallets that are secured by a cryptocurrency exchange, commonly known as a “Digital Asset Custodian”.

Cryptocurrency custody solutions are comprehensive security and storage systems designed to ensure the safety of cryptocurrency assets. These services primarily cater to institutional clients with significant cryptocurrency holdings. Cryptocurrency custodians typically utilize a combination of hot and cold storage methods.

Although the cryptocurrency custody industry is still relatively new, competition in this space is increasing. Established solution providers currently dominate the market, but new players and smaller financial firms are expanding their operations in the industry. Some popular custodians in the cryptocurrency space include BitGo, Coinbase Custody, and others.