In the context of money services businesses (MSBs) and money transmitter licensing, “custody of funds” refers to the holding of funds by a business on behalf of its customers.
When a business has custody of funds, it is responsible for safeguarding the funds and ensuring that they are available to customers when they are needed. This can include holding the funds in a bank account or other type of financial institution, and using various security measures to protect the funds from theft or loss.
When a business does not have custody of funds, it does not hold the funds on behalf of customers. Instead, the customers hold the funds directly, and the business acts as a facilitator for the transfer of funds between customers.
Custody of funds is important because it is closely related to the level of risk and regulatory compliance required of a money transmitter business. Businesses that hold custody of funds are subject to a higher level of oversight and compliance requirements, because they are deemed to be taking on more risk by holding customers’ funds.
Custody of funds is a legal term, and it is defined as holding or controlling property or assets for the benefit of another party. This can include holding and safeguarding money, securities, or other assets on behalf of customers, clients, or other parties.
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This page was last updated on July 17, 2023.
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