Custodian bank

A custodian is a bank or financial institution that holds securities and other assets on behalf of investors, keeping them safe and handling the administrative work that comes with ownership. Rather than an investor physically holding stock certificates, a custodian keeps electronic records of what is owned and by whom, processes dividend payments and corporate actions, and settles trades as they happen.

Custodians serve everyone from individual brokerage account holders to the largest pension funds and mutual funds. A large asset manager overseeing billions of dollars across many funds typically uses one or more global custodian banks to hold the underlying securities, track positions across markets, and provide the record keeping that regulators require.

Keeping custody separate from investment management is a basic safeguard in the financial system. It means the firm making investment decisions is not the same firm physically holding the assets, which reduces the risk that client assets could be misused or that a fund manager's failure would put clients' holdings at risk. This separation of duties is one of the reasons regulators pay close attention to who a fund's custodian is.