Understanding Custody of Funds

An important aspect of Remittance-as-a-Service (RaaS) is understanding Custody of Funds. Why custody of funds is important, when should you know about it and when you should not know about it, and what does it mean?

What Does Custody of Funds Mean?

Custody of funds means to hold on to money, to be able to touch the money. In the money transfer world, you cannot touch or hold on to money if you are not licensed. All parties involved in each and every single transaction need to be licensed, if they want to hold on to the funds. 

Who Can Take Custody of Funds?

One important thing to remember during money transfers is that each player in the equation has to be licensed. The only reason why you get licensed is so that you can touch the money and hold onto it, or in short, you can have custody of the funds. If you are not licensed, you cannot take custody of the funds and it is simply illegal for you to handle the money.

For example, if you’re trying to make a transaction from an account in Chicago, send it to another account in London, and then push it to a money transfer operator in Nigeria, and if you are not licensed in London, you cannot touch the funds. Why? Because you are not licensed and if you hold onto the funds, the transaction suddenly becomes illegal. The person or institution handling the funds have to have a license to be able to take custody of funds.

In cases where you are not licensed, and are working in a regulatory coverage setting, only your licensed institution can take custody of funds on your behalf. 

Does It Apply to Crypto Transfers?

The term “funds” means anything which has monetary value, including crypto, fiat, non-fiat, gold and silver. If this fund has been moved across (and crypto is certainly a fund being moved across) and you take custody of it, you must have a license for it.

This is even more so true when you’re doing Bitcoin transactions or if you’re doing crypto based remittances. So if you’ve collected the money on your MTL’s and take the Bitcoin and push it to another account, you just took custody of funds and it is illegal to do so without the proper license. 

What Happens When You Are Not Licensed?

The United States law has very strict measures in place when it comes to holding people accountable for breaking these laws despite their geographical location and making an example of them. There are chances where at first you may get away with accessing funds without a proper license but sooner or later, it would all fall apart. Even if you think you are doing a small transaction of, for example $10,000, there may be a chance it may go unnoticed at first, but at some point in time regulatory authorities will intervene and your name will come up and then it’s not a pretty picture.

The key takeaway is that you shouldn’t take custody of funds without a license. You do not want to operate an illegitimate exchange or an illegitimate transfer where you have custody of funds for even a microsecond. If you’re going to be holding onto funds, whether they are fiat, crypto or in any other form, you must have a license. If you don’t have a license, then you must stay away and do not take custody of funds for any amount of time because it is illegal and you will face legal repercussions. 

This page was last updated on November 14, 2022.

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