State Street, a U.S. custodian bank that oversees more than $ 40tn in equity, is implementing a new digital division, reflecting pressure on financial services companies to help customers exchange cryptocurrencies even as regulators work out rules for the sector.
The move came just weeks after the Boston bank was appointed by Iconic Funds to serve as administrator of a bitcoin-backed exchange listed on the Frankfurt Stock Exchange.
Nadine Chakar, who will head State Street Digital, told the Financial Times that the bank was looking to keep pace with customers who had increased their crypto exposure by 300 percent in the last two or three months.
“We’re at a tipping point now where this is moving fast,” he said. “Have we received calls from endowments and foundations receiving crypto donations and saying what do we do with it? We’ve seen companies thinking of adding crypto to their budgets.”
Custody banks earn fees by providing back-office services such as record keeping and commercial compensation to fund managers. At the end of March, State Street had $ 40.3 billion in custody or administration and $ 3.6 billion in its own fund management arm.
The creation of the new State Street division for digital finance has followed similar moves in recent months by competitors including Bank of New York Mellon, Northern Trust and Standard Chartered.
Chakar said State Street is preparing for the launch of its digital unit by partnering with academic institutions on research projects and in liaison with regulators.
However, their move comes as American regulators prepare take a more active role in overseeing the $ 1.5 billion cryptocurrency market because of concerns that the lack of proper supervision risks harming investors. Earlier this year, banking supervisors, including the Federal Reserve, formed a “sprint team” to establish a “regulatory perimeter” for the industry.
Chakar said, “We have to support everything in crypto services that we are allowed to support from a regulatory perspective. The level of communication back and forth with our regulators is intense.”
State Street is also waiting for the Securities and Exchange Commission to pass judgment on whether the proposed exchange-traded funds can be listed in the United States. Those awaiting approval include VanEck Bitcoin Trust, which in March appointed State Street as its fund manager and transfer agent.
Chakar said State Street had “a lot of customers looking to launch crypto ETFs” but acknowledged that it could be some time before the SEC acts on pending applications like the one presented by VanEck.
“If we need more time to do the right thing, and provide the industry with the clarity we need, we will continue to work with our customers,” he said. “In this case, patience is a virtue. We will continue to be patient. “
Like many industry leaders, Chakar emphasized that the digital opportunity for State Street goes beyond cryptocurrencies – and includes the use of blockchain technology to make financing more efficient.
“We’re turning the industry upside down,” he said.
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