Did you know that the securities you have can be entrusted to a bank? For those of you who want to entrust the securities or instruments you have, you can entrust them to the custodian bank, which is a party by providing custody services for securities. This time, we will learn what a custodial bank is itself. The custodian bank is a party that will provide a securities custody service or other assets that are still related to the securities, so that it will be assisted in taking care of the administration and supervising your assets. For more details about this custodial bank, you can learn about it through the summary of the discussion below.

What is a Custodian Bank?

Custodian is a word that comes from custody, which if quoted from KBBI, the meaning of custodian is a responsibility or control that will be applied to a person or goods. So in general, a custodian bank is a financial institution that will guarantee that customers' assets remain safe, and can overcome risks in the form of loss, misuse, loss, or theft. In Law of the Republic of Indonesia Number 8 of 1995 concerning the Capital Market, a custodian bank is a party that will provide services in the form of custody of Securities and other assets that will be related to securities and other services, including to receive interest, dividends, and other rights, settle a Securities transaction, and represent account holders who have become their customers. Meanwhile, the definition of the Financial Services Authority (OJK) Regulation Number 24/POJK.04/2017, a custodian bank is a commercial bank that has received approval from the Financial Services Authority to be able to carry out business activities as a custodian. In its implementation, this custodian bank is regulated and supervised by the Indonesian Central Securities Depository or commonly abbreviated as KSEI. KSEI serves as a Depository and Settlement Institution (LPP) in the Indonesian capital market which functions to regulate and set policies regarding the storage of securities portfolios to be applied to the custodial commercial banks. Based on this understanding, the duties of this custodian will be different from that of commercial banks. Because the custodian will act as a party that has provided custody services for shares and other assets. As for commercial banks that want to become custodians, they must first get approval from the OJK.

Function

The function of the custodian bank is to be able to deposit an asset collectively such as bonds, stocks, and also carry out administrative duties in ways such as receiving dividends, collecting sales proceeds, and collecting information about the reference company such as by carrying out transactions in foreign exchange if necessary, completing a sale or purchase transaction, and presenting a report on all its activities as a custodians to its clients, as well as annual general meetings of shareholders. When you want to make an investment, one of the things that must be considered is security. It will be very natural if the security is considered because we also need to think about it to be able to minimize the risks that exist such as by being trapped in fraud and embezzlement of money regarding investments, which still often happens to the community. When you want to invest in financial assets that are apparently intangible, such as mutual funds, security will be a very important factor. However, we all don't need to worry about money that will be misused later by investment managers or agents from mutual fund sellers when investing using mutual fund assets. Because, all funds belonging to customers and also wealth assets from the mutual fund will be stored in a very safe way at the custodian bank. In addition to being used as a depository of funds, some of the functions of a custodial bank are:

Working on Administrative Functions

The process of administration and recording of every instrument that has been owned and stored will also be the responsibility of this custodial bank institution. The process of recording that will be carried out includes buying and selling shares, sending a confirmation letter regarding buying and selling transactions, transfer and calculation of units, disbursement of a deposit, to sending it to monthly reports.

Supervise Investment Managers

  1. This function regarding supervision is also the authority of the Custodian bank. The supervision is carried out to investment managers. This is done by the custodian bank so that the investment manager cannot take a policy that can later harm the investors of the capital owner.
  2.  It has the responsibility to be able to warn the investment manager about matters that if there is a management that violates the applicable regulations.
  3. The manager of the custodial bank can bring the case to the Financial Services Authority if the warning that has been given is ignored.
  4. It is not allowed to have a special relationship with one party or the other, either for investment managers or investors for security reasons.
For example, in a certain bank that is an investment manager in one of the mutual fund products, the assets of this mutual fund product should not be deposited in a custodial bank that already has a relationship with the bank, although there is a possibility that the bank also has a license as a custodial bank.

Assignment

There are tasks from the custodian bank that the party will do. Not only for the storage of an asset belonging to investors, but there is still another task of this custodian bank. The duties of the custodian bank are:

Storing Certificates and Valuable Assets

As explained earlier, the most important task of the custodian bank is to store a certificate and also valuable assets. After the fund has been managed by an investment manager in the form of securities, the asset will be entrusted to the custodian bank. Because of its very important role in safeguarding and securing various securities belonging to investors, this custodial institution must also obtain permits and supervision from the OJK and the Indonesian Central Securities Depository.

Record Investment Manager Transactions

The task of another custodian bank is to record transactions from the investment manager. When the investment manager has made a transaction either when investing capital, buying and selling, withdrawing profits, sending confirmation letters, transfers, or calculating units. So that the custodian is also obliged to know and record the transactions that have been carried out in a report. Which later, the report will be reprocessed to be given to investors.

Presenting and Transmitting Investment Data to Investors

The results of recording transactions that have been recorded by the investment manager will then be processed by the custodian. Not only that, this institution will also know the results of the investment of financier funds that have been invested in various types of securities portfolios. This information is mandatory for the custodian to know, because later the data will be processed and compiled so that it becomes an investment report. The custodian will then present and send data from the investment to investors. So that these investors will know about the information about the funds they have invested. The process of presenting and sending investment data to investors will begin with the calculation of the Net Asset Value (NAV) of the mutual fund, the result of management that has been managed by the investment manager. The results of this NAV will be recorded along with asset transactions and other securities in the mutual fund. Then, the custodian will send proof of the customer's transaction which will be in the form of a transaction confirmation letter (SKT). After this, the custodian will prepare and send a monthly investment report.

Supervise the Implementation of Investment Manager Duties

Supervising in the implementation of the duties of the investment manager is also part of the duties of the custodial bank. Even though the investment manager has adequate knowledge and certification, the investment manager cannot immediately make a decision in investing the investor's funds. So that the investment manager will later need input and consideration from the custodian. So that later the policies that will be taken cannot harm customers. In addition, the custodial institution also has the right to reprimand and warn investment managers who have committed misappropriations or violations. If the investment manager has done something that will be high risk, then the custodian bank is obliged to report it to the OJK.

Securing the Mutual Fund Transaction Process

One of the duties of the custodian bank is to secure the mutual fund transaction process. The custodian must know all information and transactions that have occurred in the mutual fund. Therefore, it is the duty of the custodian to keep all secrets so that security is still maintained.

Custodian Banks in Indonesia

After knowing about what the duties of the custodial bank are, this time we will find out what are the examples of the custodial bank itself. Based on data from the Financial Services Authority, some examples of custodial banks that have mutual fund management deposits are:

HSBC Bank Indonesia

HSBC Indonesia has been ranked first with mutual fund funds under management which have reached around IDR 99.24 trillion. This value has represented a market share of 18.5 percent of the total funds under management in mutual funds in June 2021 which amounted to IDR 536.1 trillion. The value of the mutual fund managed funds that have been deposited at HSBC has almost reached IDR 100 trillion and has far exceeded the value of other banks.

Standard Chartered Bank

Standard Chartered Bank is currently in the second position of the largest mutual fund managed fund storage in June 2021 or with IDR 76.94 trillion. This value has controlled the market share of 14.35 percent.

Citibank N.A

Citibank N.A is occupying the third position by having managed the storage of mutual fund managed funds which has reached IDR 64.01 trillion in June 2021. This value has represented a market share of 11.93 percent of the total mutual fund under management.

Bank Central Asia

Bank Central Asia or commonly known as BCA has been ranked fourth as the custodian bank of the largest mutual fund managed fund with a value of Rp48.94 trillion. BCA has controlled the market share of mutual fund management deposits of 9.12 percent.

Deutsche Bank A.G

Deutsche Bank A.G has been in the 5th position as the custodian bank for the largest mutual fund managed fund storage in June 2021 with an amount of IDR 46.76 trillion. Deutsche Bank has controlled a market share of 8.72 percent for mutual fund management.

Sharia Custodian Bank

PT Bank Syariah Indonesia Tbk (BRIS) or commonly known as BSI has supported investment in accordance with existing Islamic sharia. The form of support has been realized by becoming a custodian bank to be able to administer the entire portfolio in the form of sharia securities, including sharia stocks, sukuk, sharia mutual funds, and other sharia investment instruments. By becoming a custodian bank, BSI has provided various services in accordance with Islamic sharia. The form of service includes trustee services to be able to represent investors' interests in the issuance of the desired sukuk as well as custodial services in the form of safe keeping and fund administration. Not only that, this BSI custodian will also administer the entire portfolio of sharia securities that investors will have, such as sharia mutual funds, sharia stocks, sukuk, and other sharia investment instruments that are already owned by banks, insurance, investment managers, pension funds, and other financial institutions. BSI has also obtained a permit to be a custodial bank from the Financial Services Authority or OJK since 2019. Until now, BSI has managed assets under custody of IDR 15.6 trillion. Based on data from the Financial Services Authority or OJK, mutual fund funds managed by BSI as of June 2021 have reached IDR 500 billion. BSI is the only custodian bank that has been listed as a bank with Islamic sharia provisions among the 18 existing custodian banks. In the first position, PT Bank HSBC Indonesia has recorded funds under management of around IDR 99.24 trillion in June 2021. In second place is Standard Chartered Bank with a value of IDR 76.94 trillion. And the third position is still occupied by foreign banks, namely Citibank with funds under management of IDR 64.01 trillion. Meanwhile, PT Bank Central Asia Tbk (BBCA), which acts as a local bank, has been in fourth place with funds under management of IDR 48.94 trillion as of June 2021.

Differences with Reservoir Banks

For those of you who ask about the difference between a custodial bank and a holding bank, as previously explained that a custodian bank is a bank that will provide services regarding the custody of products in the capital market such as stocks, bonds and mutual funds. In addition, this Custodian Bank is a bank that will be tasked with receiving dividends, interest and other rights that should be received by customers who make investments. As for the holding bank, it is a bank that has been mandated by the Custodian Bank to be able to send a fund from the sale proceeds to the customer's account. Even so, there is a time when the Custodian Bank of the investment product that you have purchased will be the same as this holding bank, which has the task of sending funds from the proceeds of the sale of the product on the investment. For example, mutual fund products such as Indonesian State Sukuk Majority bonds. Bank BNI is a Custodian Bank that will store your funds and dividends which will also be the bank that sends funds from sales if the products that have been stored will be sold by you. An example for investment products that already have a Custodian Bank and also a different holding bank is from the Sucorinvest Sharia money market mutual fund product. In this product, your money will be stored by HSBC bank and will be accommodated by BCA bank. Another example is the purchase of mutual funds through Bareksa, which is as a mutual fund selling agent, namely investors will not directly transfer funds to the custodian bank, but by way to a holding account first in the name of the mutual fund that has been created by the custodian bank. Even so, investors do not need to worry about the money being misused by the sales agents of mutual funds. Because, money from the holding account in each mutual fund will usually be directly deposited at the custodian bank. So, you don't need to worry about the safety of the investment money. After knowing what a custodial bank is, its functions, duties, and examples of the custodial bank itself, you can also find other information about this custodian in various media such as books, journals, the internet, and others. For those of you who want to invest through this custodian bank, it is hoped that you will find out more about the bank you refer to to be able to find out how the system is at the bank. This the article and also a summary from GIC Indonesia regarding "Custodial Banks: Differences with Sharia and Containers". Also look for other information on GIC regarding bank information, government bonds, assets, and other financial matters, such as the Central Bank only on the GIC Journal. Also deepen various types of forex trading knowledge on GICTrade, through scalping ebooks and NFP live trading. Also make sure you download the GIC application on the Play Store or App Store.