Custodian Bank Law and Legal Definition
Custodian bank is a financial institution having supervision over banks and which acts as custodian for a clearing corporation. Custodian banks were setup under the Investment Company Act of 1940 for protecting investors. The bank is supervised and examined by a state or federal authority. A custodian bank acts as a third party watchdog responsible for protecting investors' assets from any illegal activities of the fund manager. A custodian bank is a bank responsible for safeguarding a firm’s or individual’s financial assets.
As a custodian the bank functions:
- to hold in safekeeping assets such as equities and bonds;
- arranges settlement of any purchases and sales of such securities;
- collect information on and income from such assets;
- provide information on the underlying companies and their annual general meetings;
- manage cash transactions;
- perform foreign exchange transactions where required; and
- provide regular reporting on all their activities to their clients.
The bank act as global custodian when the bank holds assets for their clients in multiple jurisdictions.