State Street is setting up a new division focused on digital finance to include services for crypto, central bank digital currency, blockchain, and tokenization, the company said Thursday. State Street has $40.3 trillion in assets under custody or administration and manages $3.6 trillion in assets through State Street Global Advisors.
The new division, called State Street Digital and comprised of 425 professionals, will address the needs of an increasing client base, which saw a 300 percent growth in investments in cryptocurrency from February to April, the company said. State Street's move gives digital currencies an additional mark of institutional credibility.
“This is important to asset managers, hedge funds, insurance companies, pension plans, endowments, and foundations,” said Nadine Chakar, who is leading the new division. “This is going to change everything that we do. We are working with asset managers in the same way [as those who are] looking for trusted providers like State Street that can help them with the custody, the reporting, striking NAV [net asset value], and consolidating those assets with their traditional assets.”
The firm is currently awaiting approval by the Securities Exchange Commission for a crypto exchange-traded fund to be listed in the U.S. If that is approved, State Street would be the fund administrator and transfer agent for a bitcoin ETF for investment manager VanEck.
“State Street, in partnership with VanEck, was the first one to go in front of the SEC and put an application out for a crypto ETF,” said Chakar. “We have been leading the industry in a series of firsts.”
The firm is also working with WisdomTree for a tokenized ETF. In April it launched a partnership with Frankfurt-based Iconic Funds for the first bitcoin-backed exchange-traded note.
Competitors such as Bank of New York Mellon have also launched similar units in recent months to address the evolving needs of clients for the crypto currency market, which is now worth some $1.5 trillion.
The move comes as U.S. financial authorities take on a more stringent approach in regulating the digital currency space, such as requiring transfers worth more than $10,000 to be reported to the Internal Revenue Service, and citing that “Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.”
“Every single regulator on the planet is looking at this,” said Chakar. “But that’s okay, we’re used to that. The key here is 10 percent of the world’s assets flow through our pipes everyday. We have a responsibility to lead with the observation and experience that we gather by serving our clients everyday. It is that constant dialogue and that ability to experiment... it’s really running this division like a startup in the middle of a very well established bank.”