Understanding Custody of Funds in Money Transfer / Remittances

The movement of funds is a licensed arrangement. Without a license, you cannot move funds across the world. Those are the global rules everyone in the financial services society has to adhere to. Not only do we have to adhere to it, but it is also ILLEGAL to move funds without a license. Not wrong, or incorrect, or disturbing, but ILLEGAL.

Equally important, and associated with funds movement is understand Custody of Funds (or assets). If you do not understand the mechanics of ‘custody of fund’ then you can determine where in your flow of funds, are you taking custody of funds and also, if you have a license to go along with it.


Hello. My name is Faisal Khan. I’m a banking and a payment consultant. And today we’re going to talk about custody of funds, why a custody of funds is important and when you should know about it and when you should not know about it and what does it mean?

I’ve said it many, many, many, many videos, the transferring of money from point A to point B, think of it as a movie. And in that movie, the star of the movie, someone is going to load up an account or pay, or bring money or cash, etc. and at the end of the movie, someone is going to get paid out, and in between, we have some players where the baton is passed, so to speak, the money is passed.

Every player in this in this movie, in this equation, in this line, has to be licensed. That’s the only reason why you get licensing so that you can touch the money, you can hold onto money. You can have custody of the funds. If you’re not licensed, you cannot have custody of the funds.

So if you’re trying to do a transaction and you hold on to funds, they say, you know, take the money from Chicago and just push it to my account in London and then we would push it into a money transfer operator I know in Nigeria or Kenya or in Bangladesh or in the Philippines.

The fact of the matter is that if you’re not licensed in London, you just took custody of funds and that you just broke the chain of command over here, you know, not the chain of command, the regulatory chain. The transaction just became illegal because there was a person handing funds that they were not licensed to handle. So you took custody of funds. The whole game of sponsorship of FBO accounts and regulatory and regulatory coverage is that you don’t take custody of funds, that only a licensed institution takes custody of funds. This is even more so true when you’re doing Bitcoin transactions or if you’re doing, you know, crypto-based remittances, you know, you’ll say, oh, when you’ve collected the money on your MTLs, now I will take the bitcoin and push it over there – you just took custody of funds.

The funds’ definition is not that oh it’s just crypto and fiat or non-fiat or gold or silver. Its funds. If this is a fund that is being moved across and crypto is certainly a fund being moved across and you take custody of it, you better have a license for it.

You know, people always say, well, you know, Faisal, you’re playing the devil’s advocate a little bit too much. The United States government has a very long arm of the law when it comes to going and catching people across borders, across state lines into different countries and making an example of them. Now, you may say what I’m doing is 10,000. Yeah, you may get away with it. You may do 20,000 and get away with it. But at some point in time, you know, they will intervene, your name will come up and then it’s not a pretty picture.

You may do it for short term profits, you may even just get away with it. It’s going to be very difficult to even do it. But even if you were to do it and get away with it, sooner or later, the house comes crashing down. Look at what Payza did, you know the Patel brothers, and, you know, they got whacked into this thing. And there so many others who are doing the same thing. The fact of the matter is you don’t want to take custody of funds, you do not want to operate an illegitimate exchange or an illegitimate transfer where you have custody of funds even for a microsecond. If you’re going to be holding on to funds, whether they are fiat, crypto or in any other form, you better have a license. If you don’t have a license, then stay away. Then do not take custody of funds because that is the key differentiator between the two.

I hope I was able to offer some clarity on that subject. If you have any other questions or comments, there’s a contact form link below, fill it out and I’d be happy to answer. Till next time, have a good one.

This page was last updated on September 1, 2022.

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