Difference Between Depository and Custodian

Depository vs Custodian
 

The roles of a custodian and depository are quite similar to one another. With the development of the financial world, the roles of custodians and depositories are constantly overlapping. There are however a number of main differences between custodian and depository. While custodians merely hold custody of assets and financial securities, depositories go one step further to the services provided by a custodian and assume greater control, liability, and responsibility for the assets they hold. The following article provides an overview of each and highlights their subtle similarities and differences.

What is a Depository?

A depository is a place in which things or assets are deposited for the purpose of safekeeping. Libraries are a good example of depositories as libraries are responsible for maintaining and safekeeping of books and information. In terms of business, a depository is known as a financial institution or organization that accepts deposits and holds securities and other financial assets. A depository has legal ownership over these assets and responsible for controlling those assets according to the established rules, laws, regulations, and guidelines.

A securities depository which holds financial securities enable clearing and settlements, as well as book entry transfer or those securities. For example, The Depository Trust and Clearing Corporation (the largest depositor in the world) provides custody of the securities held much like a custodian and also offers clearing and settlement services.

What is Custodian?

A Custodian is a person or institution that maintains the custody of assets or things. Examples of custodians include museums that hold historical artifacts, hospitals that hold medical records, and law firms that hold important legal documents. In the business world, a custodian is usually a bank or any other financial institution that is responsible for ensuring the safety of assets that are handed over for safekeeping. Such assets include financial securities such as stocks, bonds, certificates of deposit, and other valuables such as gold, diamonds, and jewelry. A custodian provides such safekeeping services to investors and customers. The bank or financial institution not only hold these assets safely but also provide an overview of the asset’s value over time. The custodian also provides the services of purchasing and selling such valuable assets on behalf of the investor. In this case, the custodian takes full responsibility when ensuring that the assets are properly taken into custody and accounted for, and in the case of a sale, that the assets are properly delivered and agreed payment terms are met.

Custodian vs Depository

In the financial world, the roles of custodians and depositories are increasingly overlapping to a point at which the differences between the two are becoming quite subtle. The main difference is that a depository has larger oversight responsibilities for the assets held in comparison to the custodian. In addition to having custody over the assets, a depository also has control and legal ownership over the assets. Another major difference is that the depository must maintain, sell, issue, repurchase, and conduct other activities involving the assets and securities under the rules, laws and other applicable financial, legal or regulatory guidelines. In comparison, a custodian conducts these activities on the instructions of their customers. Depositories can delegate custodian tasks to third parties, and if any financial instruments held are lost, the depository is completely liable and must assume full responsibility. However, the custodian is only responsible for any general losses or negligence, and not be responsible for any investment losses. The depository conducts all the services and activities of a custodian, but goes a step ahead in terms of control of assets and liability.

 What is the difference between Custodian and Depository?

• A Custodian is a person or institution that maintains the custody of assets or things.

• In the business world, a custodian is usually a bank or any other financial institution that is responsible for ensuring the safety of assets that are handed over for safekeeping.

• A depository is a place in which things or assets are deposited for the purposes of safekeeping. In terms of business, a depository is known as a financial institution or organization that accepts deposits and holds securities and other financial assets.

• While custodians merely hold custody of assets and financial securities, depositories go one step further to the services provided by a custodian and assume greater control, liability and responsibility for the assets they hold.