Sec. 706. Asset custody for depository institutions and certain other entities
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Congress finds the following: The laws surrounding custody of financial assets is largely customary, uncodified, and poorly understood. Lack of uniformity amongst various jurisdictions’ laws relating to custody has largely not been addressed by regulators, can contribute to risk, and is producing uncertainty for innovators. Codifying basic principles around custody of financial assets will reduce systemic risk, clearly define the rights and duties of both custodian and customer, and contribute to a more uniform and effective banking system.
In this section, the term custody means the safekeeping, servicing and management of customer financial assets, including currency, securities and commodities, on an off-balance sheet basis. Except as provided in paragraph (2), custody of financial assets is accomplished by a bailment and established by a written customer agreement. Custody shall not be a fiduciary or trust activity unless the custodian is providing substantial discretionary services with respect to an account, including through investment advice or investment discretion, and the custodian owes a customer a higher standard of care or duty with respect to the customer of that account.
A custodian and customer may establish a legal relationship other than a bailment pursuant to a written customer agreement. A custodial account shall be properly documented in a customer agreement, with a clearly defined legal relationship between the custodian and customer. Custodial assets shall be properly identified and segregated from the assets of the custodian, with proper documentation of asset segregation. Assets properly held in a custodial account under this section are not assets or liabilities of the custodian and shall be maintained on an off-balance sheet basis, including for the purpose of accounting treatment for the custodian and the customers of the custodian, notwithstanding the form in which the assets are maintained.
This section shall apply to depository institutions, as defined in section 19(b)(1) of the Federal Reserve Act ( 12 U.S.C. 461(b)(1) ), and non-depository trust companies chartered under section 5169 of the Revised Statutes ( 12 U.S.C. 27 ).
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