Episode 6: Banking | The State of Digital Assets

Our host Adam Rodricks, National Lead, Digital Services welcomes back Kareem Sadek, Partner, Technology Risk Consulting and introduces Kenneth Viegas, Consultant, Technology Risk Consulting and John Armstrong, National Industry Leader, Financial Services for their series debuts. In episode six, the group discusses global trends and future opportunities for banking in Canada as they relate to cryptoassets.

Episode Transcript

(00:00):
Hello everyone and welcome to our sixth episode of KPMG in Canada’s state of cryptoassets podcast series. Before we get into today's episode, I want to remind our new listeners to also check out episodes 1 through 5 of our series because we've been busy. Now, I'm pleased to welcome back Kareem Sadek and welcome John Armstrong and Ken Viegas, who are both making their first appearance on the podcast and we certainly welcome their fresh new perspectives. To start off, could each of you introduce yourselves and your role at KPMG? Kareem, since you're a PodBytes veteran, we'll start with you.

(00:35):
Thanks, Adam. I like the PodBytes veteran, certainly not a veteran, but since you said that, maybe we'll do this full time when we're done. We'll look into that certainly. So I’m Kareem Sadek; I'm a partner in our risk consulting advisory practice. I co-lead our crypto and blockchain practice here at KPMG and as usual, very excited to be talking to you today.

(00:59):
Thanks, Adam. It's very exciting to be here. My name is Kenneth Viegas. I'm a consultant within our advisory practice, supporting our cryptoasset as well as enterprise blockchain initiatives.
Thanks, Adam. John Armstrong here. I am our national industry lead for financial services in Canada and I also sit on our global financial services leadership team, so great to be here.

(01:24):
Thank you everyone, although your reputations certainly proceed your introductions. Let's jump right into our first question of the day. To what extent have banks adopted cryptoassets? John, can you please start us off and then Ken and Kareem, jump in as you see fit.
Yeah, sure. Obviously, it's very emerging, but I think we're already seeing a fair bit of progress. Let me start on the back end. I think you're seeing some interesting things around some banks developing stable coins, which is really a tokenization of client deposits to facilitate payments. So, there's a lot happening in the back end that's really not seen by clients. Also, central bank digital currencies; Bank of Canada Project Jasper was looking at how crypto assets could be used to facilitate, particularly cross border payments. So that's one piece of it.

(02:08):
On the other side, we're starting to see clients demand cryptoasset services from their banks and they're starting to slowly adapt their traditional offerings for the cryptoasset market. We're going to see new services from these institutions and that's gonna help the industry mature. So, in wealth management, now that Canada's regulated investment products with cryptoasset ETFs (and we're really the first to do that), advisors can allocate to cryptoassets on their client's behalf and help them with those strategies, estate planning, tax strategy, all those things are on the table in terms of things that banks will start to offer in terms of services.

(02:44):
John, that's great. We've seen in the news lately that there are quite a few companies looking to go public and part of the banking role is to provide underwriting services, which includes underwriting debt and equity transactions for companies in the cryptoasset space. This will apply to minors and brokerages. These transactions can range from raising more capital through debt or going public on the stock market. Banks can also play a role as a market maker for cryptoasset ETFs. This is going to involve them holding Bitcoin as part of the contribution process to create new shares.

(03:20):
You know, that's interesting; it sounds like crypto assets are slowly being adopted by banks in Canada. Kareem, correct me if I'm wrong, but I would think we'd only see adoption of crypto increase among banks in Canada. On this note, are there lessons that Canada can learn from other countries when it comes to banking and cryptoassets?
Yeah, in short, the answer is yes. I'll give you a few examples, but I think we need to remember that we're starting to see a slower, favorable regulatory environment in Canada, so I'm very enthusiastic and I'm very optimistic in terms of what’s to come in Canada.

(03:59):
To answer your question, maybe I'll start off with our friends to our south; I'll talk about the U.S. We've certainly seen crypto friendly regulations from the OCC, the US banking regulator. They're starting to allow their banks to provide custody services as well as interface with stable coins, which John just talked about. That’s definitely something that we're seeing in the US; we’re even seeing several crypto organizations that have received federal banking charters, which is incredible to me as I think through these when we started talking about crypto and seeing what's happening as an example in the state of Wyoming, that's great to see.

(04:46):
I think that's something that we can aspire to here in Canada and look forward to in Canada, but it's not just the US. I want to say that there's adoption from banks in many countries. There's some use cases that we've heard about a while ago - the United Arab Emirates and other countries like Singapore and Japan; there are various activities too right? There's a lot for us to look forward to when it comes to banking and learning from others that range from trading to custody. So many things to look forward to and quite frankly, a lot to learn from others.

(05:23):
Kareem, I think that's right. In Canada, we've seen relatively less adoption by banks because there's less regulatory clarity; you mentioned in the U. S., there's a little more regulatory clarity around some of these services. So, the hope and the trend is that we see a little more clarity that hopefully mirrors what we're seeing from OCC for crypto custody, for example. Having said that, Canada is already proactive in other areas of regulations, such as ETFs and the regulatory sandbox for crypto startups, so we're seeing some good progress for sure.

(05:53):
Certainly optimistic signs if I've ever heard of any. So, we talked a little bit about crypto adoption at Canadian banks and what that looks like today as well as some of the best practices that we could learn from the US. I think I'd like to now take a look forward if you will. Ken, what could future crypto asset banking services in Canada look like?
In the future, I would love to see banks custody their client's crypto assets alongside their other investments and savings accounts. In my opinion, I believe this is coming as we've seen several banks already begin their journey. I understand that this process is going to require significant technological adoption and the infrastructure to support custody is quite complex. We’ve seen several approaches in the market, ranging from acquiring crypto custodians to using white label services provided by those custodians. We may even see banks offer investment products that capture yields and other opportunities within the decentralized finance or DeFi sector of crypto assets.

(06:53):
Well, that certainly sounds like an exciting future. Unfortunately, we are out of time for today’s episode. Thank you so much to our participants for making the time to be here today. Join us next time on KPMG in Canada's PodBytes series on the state of cryptoassets when Kareem, Ken, and I will welcome back Mitch Nicholson for a discussion on insurance and cryptoassets. Bye, everybody.