State Street sets up digital unit to capitalise on crypto craze

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State Street, a US custody bank that oversees more than $40tn in assets, is setting up a new digital division, reflecting the pressure on financial services companies to help clients trade cryptocurrencies even as regulators work out rules for the sector.

The move came only weeks after the Boston-based bank was appointed by Iconic Funds to serve as the administrator of a bitcoin-backed exchange-traded note listed on the Frankfurt Stock Exchange.

Nadine Chakar, who will head State Street Digital, told the Financial Times that the bank was seeking to keep up with customers who had increased their crypto exposure by 300 per cent in the past two to three months.

“We are at a tipping point now where this is moving fast,” she said. “We are getting calls from endowments and foundations that are getting donations in crypto and saying what do we do with this? We are seeing companies that are thinking of adding crypto to their balance sheets.”

Custody banks earn fees by providing back-office services such as record-keeping and trade clearing to fund managers. At the end of March, State Street had $40.3tn under custody or administration and $3.6tn in its own fund management arm.

The creation of State Street’s new division for digital finance follows similar moves in recent months by competitors including Bank of New York Mellon, Northern Trust and Standard Chartered.

Chakar said State Street prepared for the launch of its digital unit by partnering with academic institutions on research projects and liaising with regulators.

However, its move comes as US regulators prepare to take a more active role in supervising the $1.5tn cryptocurrency market because of concerns that a lack of proper oversight risks harming investors. Earlier this year, bank supervisors, including the Federal Reserve, formed a “sprint team” to establish a “regulatory perimeter” for the industry.

Chakar said: “We will support everything in crypto services that we are allowed to support from a regulatory perspective. The level of communications back and forth with our regulators is intense.”

State Street is also waiting for the Securities and Exchange Commission to pass judgment on whether proposed crypto exchange traded funds can list in the US. Those waiting for approval include VanEck Bitcoin Trust, which in March appointed State Street as its fund administrator and transfer agent.

Chakar said that State Street had “a lot of clients looking to launch crypto ETFs” but acknowledged that it might be some time before the SEC acted on pending applications such as the one filed by VanEck.

“If they do need more time to get it right, and provide the industry with the clarity we need, we will continue to work with our clients,” she said. “In this case, patience is a virtue. We will continue to be patient.”

Like many industry executives, Chakar emphasised that the digital opportunity for State Street goes beyond cryptocurrencies — and includes using blockchain technology to make finance more efficient.

“We are turning the industry upside down,” she said.

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