What are carrying parties?
Carrying parties are entities involved in a financial transaction that carry or hold assets or liabilities on behalf of other parties. These entities can be individuals, organizations, or financial institutions. In financial reporting, carrying parties are required to disclose the details of the assets or liabilities they are holding, along with the parties on whose behalf they are holding them.
Types of carrying parties
Carrying parties can be broadly classified into two types: custodial and non-custodial. Custodial carrying parties hold assets or liabilities on behalf of other parties and have physical custody of those assets or liabilities. Examples of custodial carrying parties include banks, brokers, and trust companies.
Non-custodial carrying parties, on the other hand, do not have physical custody of the assets or liabilities they hold. Instead, they hold legal or contractual rights to receive or pay cash flows associated with the assets or liabilities. Examples of non-custodial carrying parties include derivatives counterparties, servicers, and trustees.
Carrying party relationships
In a financial transaction, there are usually multiple carrying parties involved, each with their specific roles and responsibilities. For example, a bank may act as a custodial carrying party for a client’s cash, while a brokerage firm may act as a non-custodial carrying party for the client’s securities.
Carrying party relationships can be complex, and it is essential to have a clear understanding of each party’s role to ensure accurate financial reporting. In some cases, carrying parties may be required to disclose their relationships with other parties to provide transparency and avoid conflicts of interest.
Carrying parties are subject to various regulatory requirements, which can vary depending on the type of carrying party and the jurisdiction. For example, custodial-carrying parties may be subject to capital requirements, while non-custodial-carrying parties may be subject to reporting requirements.
It is crucial for carrying parties to comply with regulatory requirements to avoid fines, legal issues, and reputational damage. As such, carrying parties often invest significant resources in regulatory compliance.
Carrying parties play a vital role in financial transactions, and it is essential to have a clear understanding of their role and relationships. By providing transparency and accurate financial reporting, carrying parties help ensure the integrity and stability of financial markets.