State Street Partners with Taurus to Pioneer Digital Asset Services Amid Regulatory Challenges

State Street, the global custody bank managing a staggering $44.3 trillion in assets, has taken a significant step into the digital assets space by partnering with Taurus, a Swiss cryptocurrency custody and tokenization specialist. This collaboration is seen as a strategic move in anticipation of a more favorable regulatory environment in the U.S. as the demand for digital asset services grows.

State Street’s initial focus will be on launching tokenized versions of traditional assets, with the first client announcement expected soon, according to the bank. Tokenization, which allows traditional assets to be represented digitally on a blockchain, offers benefits like 24/7 trading and enhanced collateral management. However, while this marks a significant advancement, the broader adoption of digital asset custody services remains hindered by existing U.S. regulations.

A critical challenge for U.S. banks, including State Street, has been the Securities and Exchange Commission’s (SEC) proposed Staff Accounting Bulletin 121 (SAB 121). This regulation imposes stringent requirements on banks that want to hold their customers’ cryptocurrency assets, essentially demanding a substantial capital buffer to mitigate associated risks. State Street has been an outspoken critic of SAB 121, advocating for changes that would ease these restrictions and allow banks to fully engage in the digital asset market.

Donna Milrod, State Street’s Chief Product Officer and Head of Digital Asset Solutions, emphasized the bank’s commitment to digital asset custody, stating, “While we’re starting with tokenization, that’s not where we’re ending. As soon as U.S. regulations help us out, we will be providing digital custody services as well. We know how to be a custodian. We don’t do that on our balance sheet. We do that off-balance sheet. They’re not our assets.”

Lamine Brahimi, Co-Founder and Managing Partner of Taurus, echoed Milrod’s sentiments on the need for regulatory improvements, particularly in the U.S. “I’m quite sure this partnership with State Street will be a positive signal for the U.S. financial markets in general, which, because of SAB 121, have been lagging those in Europe,” Brahimi said.

State Street’s venture into the digital assets space is not its first foray into blockchain technology. The bank has a longstanding history with digital assets, having previously collaborated with crypto custody firm Copper. However, Copper’s recent shift away from custody services to focus on its ClearLoop settlement system prompted State Street to explore new partnerships, culminating in the alliance with Taurus.

In addition to its digital asset initiatives, State Street also announced the successful issuance of $1 billion in senior debt. The issuance was notable for its emphasis on diversity and inclusion, with a significant portion of the underwriting syndicate comprising firms owned by underrepresented groups. This marks the fourteenth consecutive issuance by State Street structured to reflect its commitment to inclusion, diversity, and equity.

“The debt issuance we are announcing today, with a diverse set of firms, underscores the importance we see in broadening our financial partnerships,” said Pankaj Vaish, State Street’s Global Chief Investment Officer. “We are proud to announce this latest transaction as these issuances help to advance State Street’s financial and inclusion goals, broaden industry representation, and reaffirm our focus on achieving better results for investors and the communities they serve.”

As State Street continues to navigate the evolving regulatory landscape, its partnership with Taurus positions the bank at the forefront of digital asset innovation, ready to capitalize on future opportunities once regulatory hurdles are overcome.

David Thompson
Financial Desk