In a joint report with Chainalysis, KPMG says both banks and crypto firms can benefit from each other’s strengths.
Big Four firm KPMG has advised Nigerian financial institutions to embrace blockchain technology and collaborate with cryptocurrency firms instead of keeping them at a distance.
The global financial advisory company believes that a collaboration between crypto firms and traditional banks can help both sides overcome their limitations.
The details
- In a joint report with blockchain analytics firm Chainalysis, KPMG noted that the Central Bank of Nigeria’s (CBN) 2021 ban on banks engaging with crypto led to unintended side effects.
- Drawing from Chainalysis’ insights, the report stated that the ban did little to stem the growth and popularity of crypto in Nigeria.
- Instead, the percentage proportion of global crypto value flowing into Nigeria since 2021 has been on the rise.
Key context
- Dips in actual crypto value received in 2022 and 2023 were consistent with global market trends rather than a direct consequence of the CBN’s ban.
- While it did little to stop crypto’s growth, the ban instead pushed them underground and further away from the reach of regulations, the report found.
KPMG suggestion
- KPMG advised that a recent shift towards regulation and integration could potentially offer advantages for both traditional banks and crypto companies.
- According to the firm, by collaborating with blockchain companies and products, banks gain much-needed exposure to technological innovation.
- It encouraged financial institutions to maximize blockchain technology’s capacity to improve legacy monitoring systems with one that “far exceeds traditional monitoring capabilities.”
- On the other hand, crypto exchanges can benefit from the expertise of traditional institutions in risk management to enhance their financial integrity and strengthen anti-money laundering controls, it said.
Key quotes
- The report read:
“The integration of traditional banking services with crypto firms creates a symbiotic cycle – banks gain exposure to technological innovation while bringing their institutional risk management expertise to the sector.”
- On what traditional banks stood to gain from blockchain technology, it added:
“By integrating blockchain analytics into their compliance frameworks, forward-thinking banks and other financial institutions would enhance their ability to detect illicit finance, expand into new financial services, and position themselves at the forefront of an increasingly digital financial system.”
Why it matters
- In Feb. 2021, the CBN banned Nigerian financial institutions from transacting in and with cryptocurrencies or firms dealing with them.
- It asked banks to close any accounts suspected of having been used to trade crypto or belonging to individuals or firms running crypto businesses.
- However, Nigerians instead took to peer-to-peer crypto exchanges and continued transacting in cryptocurrencies, so much so that crypto usage in the country did not miss a beat.
- The CBN walked back on its ban in Dec. 2023, authorizing banks to serve crypto companies provided they are licensed.
- Six months later, the Nigerian Securities and Exchange Commission announced the expansion of the Accelerated Regulatory Incubation Program (ARIP) sandbox to include crypto firms.
- It issued provisional licenses to two local crypto exchanges — Busha and Quidax.
