KPMG Advocates for Collaboration Between Banks and Crypto Firms
In a recent report co-authored with Chainalysis, the prominent consulting firm KPMG has urged Nigerian banks to adopt blockchain technology and work alongside cryptocurrency companies rather than distancing themselves from this growing sector. KPMG argues that such collaboration can help both traditional banks and crypto entities address their respective challenges effectively.
Unintended Consequences of the CBN’s Ban
The report highlights that the Central Bank of Nigeria’s (CBN) decision in 2021 to prohibit banks from dealing with cryptocurrencies led to unexpected repercussions. According to insights from Chainalysis, this ban has not curtailed the expansion and acceptance of cryptocurrencies within Nigeria. In fact, the volume of global crypto value entering Nigeria has been increasing since the ban was enacted.
Market Trends vs. Regulatory Impact
The declines in crypto values observed in 2022 and 2023 align with global market dynamics rather than being directly linked to the CBN’s restrictions. The report indicates that rather than suppressing the crypto market, the ban has driven transactions into informal channels, making them less regulated and harder to monitor.
KPMG’s Recommendations for the Future
KPMG suggests that the recent trend towards regulatory frameworks and integration offers potential benefits for both conventional banks and cryptocurrency firms. The firm believes that by partnering with blockchain technology providers, banks can obtain critical exposure to innovative technological advancements. KPMG encourages financial institutions to leverage blockchain’s capabilities to enhance outdated monitoring systems, which could significantly improve upon existing methods.
Mutual Benefits of Collaboration
From the perspective of cryptocurrency exchanges, collaborating with traditional banks could provide valuable support in risk management, thereby improving the integrity of their financial operations and bolstering anti-money laundering efforts. The report emphasizes that this partnership can create a beneficial cycle where banks gain access to new technology while imparting their risk management expertise to the crypto sector.
Insightful Observations
KPMG notes, “The merger of conventional banking services with crypto firms fosters a mutually beneficial relationship—banks gain technological insights while contributing their risk management proficiency to the industry.” Furthermore, it states, “By incorporating blockchain analytics into their compliance systems, proactive banks and financial entities will enhance their capacity to identify illicit activities, broaden their service offerings, and secure a position at the forefront of an evolving digital finance landscape.”
The Importance of Regulatory Shifts
In February 2021, the CBN prohibited financial entities in Nigeria from engaging in transactions involving cryptocurrencies or companies associated with them. This directive led to banks shutting down accounts linked to crypto activities. However, Nigerians quickly adapted by utilizing peer-to-peer platforms to continue their crypto transactions, resulting in a sustained interest in digital currencies. In December 2023, the CBN revised its stance, allowing banks to work with licensed crypto businesses. Shortly thereafter, the Nigerian Securities and Exchange Commission expanded the Accelerated Regulatory Incubation Program (ARIP) to include cryptocurrency firms, granting provisional licenses to local exchanges like Busha and Quidax.
