KPMG Urges Nigerian Banks to Collaborate with Crypto Firms
In a collaborative report alongside Chainalysis, KPMG has recommended that financial institutions in Nigeria should adopt blockchain technology and foster partnerships with cryptocurrency companies rather than distancing themselves from them. The prominent global advisory firm posits that a partnership between traditional banks and crypto enterprises could help both parties address their respective challenges.
Insights from the Report
KPMG’s report, which draws from insights provided by blockchain analytics company Chainalysis, highlights the unintended consequences of the Central Bank of Nigeria’s (CBN) ban on banks engaging with cryptocurrency activities, which was enacted in 2021. The analysis revealed that this prohibition did not significantly hinder the growth or acceptance of cryptocurrencies in Nigeria. In fact, the volume of global crypto transactions directed towards Nigeria has increased since the ban was established.
Contextual Background
The declines in actual cryptocurrency values received in 2022 and 2023 align with broader global market trends rather than being a direct result of the CBN’s restrictions. Rather than curbing crypto activities, the ban pushed these transactions underground, distancing them from regulatory oversight, as indicated in the report.
KPMG’s Recommendations
KPMG suggests that the recent shift toward regulatory acceptance and integration could present opportunities for both traditional banks and cryptocurrency firms. By collaborating with blockchain companies, banks can expose themselves to essential technological advancements. The firm encourages financial institutions to leverage blockchain’s potential to enhance outdated monitoring systems, which can significantly outperform conventional methods. Conversely, cryptocurrency exchanges could enhance their financial reliability and strengthen anti-money laundering measures by utilizing the risk management expertise of traditional banking institutions.
Notable Remarks
The report articulated that “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.” It further emphasized that “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.”
Significance of the Findings
In February 2021, the CBN prohibited Nigerian financial institutions from engaging in cryptocurrency transactions or dealing with companies involved in the crypto sector. The directive led to banks shutting down accounts suspected of being used for crypto trading or belonging to individuals or businesses in the crypto space. However, this did not deter Nigerians; instead, they turned to peer-to-peer crypto exchanges to continue their activities, maintaining robust engagement with cryptocurrencies. The CBN reversed its stance in December 2023, allowing banks to service licensed crypto companies. Subsequently, in June 2024, the Nigerian Securities and Exchange Commission expanded its Accelerated Regulatory Incubation Program (ARIP) sandbox to encompass crypto firms, issuing provisional licenses to local exchanges such as Busha and Quidax.
