Due to U.S. regulatory hurdles, State Street will initially focus on tokenization rather than crypto custody, with the first tokenization client to be named soon after going live.

State Street has been “very vocal” about the need to change the SEC’s SAB 121, which could force banks seeking to hold crypto to maintain an onerous amount of capital to compensate for the risk.

State Street, the global custody bank with $44.3 trillion in assets under its watch, chose cryptocurrency custody and tokenization specialist Taurus to provide digital assets services in anticipation of a more congenial regulatory climate in the U.S.

The bank’s initial focus is to go live with tokenized versions of traditional assets, with the first client named shortly afterward, State Street said.

A natural role for a custody specialist like State Street would be to look after digital assets, but banks in the U.S. have been faced with a major hurdle in the form of the Securities and Exchange Commission’s (SEC) proposed Staff Accounting Bulletin 121 (SAB 121), which imposes restrictions on companies that want to hold their customer’s crypto assets.

State Street has been “very vocal” about the need to change SAB 121, which could force banks seeking to hold crypto to maintain an onerous amount of capital to compensate for the risk, said Donna Milrod, State Street’s chief product officer and head of Digital Asset Solutions.

“While we’re starting with tokenization, that’s not where we’re ending,” Milrod said in an interview. “As soon as the 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 Switzerland-based Taurus, pointed to the benefits of tokenization, such as 24/7 trading and the ability to optimize collateral management, while echoing the need for a better regulatory climate 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 in an interview.

State Street has a long history in blockchain technology and digital assets, most recently working with crypto custody firm Copper before the startup pivoted away from custody to focus on its ClearLoop settlement system.