Why KPMG Bought NFTs & Crypto. Interview with Benjie Thomas -Managing Partner- Advisory Services, KPMG Canada

Transcript

Nick Abrahams:
Welcome to today’s podcast. I am delighted to welcome Benjie Thomas, who is the managing partner advisory services for KPMG Canada. Benjie, welcome to the show.

Benjie Thomas:
Nick, thank you for having me, really, really excited to be here today and engage in a dialogue with you as to what we’ve been doing here in Canada, which frankly has gotten lots of chatter on the street across the world. And so we’re excited for that because it shows us we’re going in the right direction.

Nick Abrahams:
Oh, I think that’s right. I loved it when I read about what you guys had done in terms of in the Web3 space, you bought some cryptocurrency to hold on the balance sheet, you bought an NFT, it’s just remarkable because obviously KPMG, a big global professional services firm and yet you are showing the leadership of getting involved in Web3. Can you just give me a sense, why KPMG Canada? Why do you have such a focus on Web3?

Benjie Thomas:
First of all, I’d tell you as a Canadian firm in our advisory practice, I would tell you we’re quite forward thinking and innovation is quite an important agenda for us in terms of how the future is evolving. And you can appreciate even as we’ve gone through this pandemic, how quickly innovation has moved to the forefront and really helped the world adjust to this changing environment. And so when you think about Web3, we are genuinely witnessing a period of rapid growth, particularly for the crypto ecosystem, decentralized finance, and now frankly, the common conversation is around the metaverse and the wider Web3 movement. And we recognize this change will really impact how organizations operate, including KPMG. And so Web3, the next iteration, what I would call is the next iteration of the internet, and it’s really going to affect how people interact with certain brands, socialize with communities and trade digital assets.

Nick Abrahams:
That it’s just fantastic because I think it does show if an organization of the caliber of KPMG can get its head around things like crypto and NFTs. It does show that, okay, this has come out of the shadows. And I think maybe you mentioned crypto and so KPMG Canada bought some Bitcoin and some ether to hold on your balance sheet as part of, I guess corporate treasury diversification and so forth. And traditionally I think crypto, if we have had this conversation two years ago, I think people would’ve been like, “Well, crypto isn’t that just sort of used by ransomware providers or something.” And yet now we’ve got an organization like KPMG getting involved. Can you give us a sense of why you did that? What’s the rationale behind the Bitcoin and the ether purchase?

Benjie Thomas:
Yeah. Nick, when you think of it, here’s a couple things, first of all, we’re not the only organization of global-size that has decided to take a position in this asset class. And crypto assets in general is a maturing asset class. And so investors such as head funds, family offices, and large insurers and pension funds are increasingly gaining exposure to these crypto assets. Frankly, when you think about brokers and wealth advisors, when they talk to their clients today, I would tell you that more often than not, they’re talking about the idea of saying, it’s worthwhile to allocate a portion of your investment allocation to crypto assets. And so that’s the conversation that’s happening to today. And so when you think about an organization like ours, if the general population is talking about crypto assets and actually trading in the asset class, we are advisors to our clients and we advise them based on trends that are evolving, and this is an evolving trend or a maturing trend.

Benjie Thomas:
And so for us, we felt it really important to take a position in both Bitcoin and ether, one, to help educate ourselves on the overall transaction process around acquiring an asset class like this, but also think about the governance that’s involved, associated with acquiring an asset class like that within a corporate organization that governance plays an important role in. And so we now are in a position to talk to clients as subject matter experts around their own journey in making transactions in which they would carry this asset class in their own balance sheet. And so I think we’ve really positioned ourselves in that particular crypto asset correct category. But I’m sure we’ll talk about it a little further. There’s other parts as well like NFTs and frankly, the metaverse where we’re also making headways.

Nick Abrahams:
Yeah. And I think that’s right. I mean Fidelity just a week or so ago announced that they were going to allow holders of 401ks in the US access to some form of crypto assets within their pension funds. So it feels like the discussion has truly moved into the mainstream, so I applaud you for that. And I think crypto is one of those things too where you can’t wing it with this. If you’re an advisor, you can’t learn this stuff overnight. Maybe in the past you could do things, you could sort of have a bit of a go at it, but the concepts are so novel I think, that it’s very difficult to actually be an advisor on it unless you are immersed in it. And so I think it makes sense that you’ve actually gone and bought some of yourself. I guess given that you’ve gone through it, you’re talking about the governance and so forth, could you give the listeners just some ideas about some of the key issues that they should be thinking about before buying crypto to hold on the balance check?

Benjie Thomas:
Yeah, absolutely. Nick, what it’s interesting is we didn’t just decide overnight that we were [inaudible 00:07:24]

Nick Abrahams:
I’m sure.

Benjie Thomas:
… And you can imagine an organization like ourselves. And so the first thing I would say is do your due diligence and due diligence doesn’t happen overnight. And so we really invested a lot of time in doing our due diligence. And then at KPMG, frankly we established a governance committee to provide oversight and approve the treasury allocation. The committee included stakeholders from finance, risk management, advisory, audit and tax. And we also completed a rigorous risk assessment process that included a review of regulatory, reputational and custodial risks. And so our specialists also assess the tax and accounting implications of the transactions which you have to think about as well. And so having gone through all these steps, we are well positioned to guide clients through that exact same process and help them participate in this ecosystem.

Benjie Thomas:
And so we’ve seen and experiences the challenges associated with this asset category. And so we’re really investing in the space. And you can imagine as I went through the experience, you learn all sorts of different things, think about, am I going to carry the asset on a hot wallet or a cold wallet. And if it’s a cold wallet, how are we going to store the cold wallet and really what are the governance procedures we’re putting in place as an organization? And so there are some unique complexities associated with this asset class that really, you do need to be educated on it, and you can’t just read a book to be educated. For us, we felt it was important to have that practical experiential component of it as well which has allowed us to frankly get lots of inbound reach outs from a number of organizations who are exploring, exactly what we ultimately went through.

Nick Abrahams:
Yeah. I’m not surprised because we are certainly seeing it with organizations saying, “Digital assets is becoming a legitimate asset class, we need to think about what it looks like on the balance sheet.” So makes sense. And I completely understand the custody issue because that’s one of the great issues with the transaction friction that comes with crypto. So you’ve experienced that firsthand so it’s great to be able to advise clients on it. Maybe then just shifting gears, so the NFT world, the non fungible token, so KPMG Canada bought an NFT, so woman number 2681 actually to be precise, and so that was in February and you paid I think approximately $50,000 for it. So, can you tell us a little bit about woman 2681 and I guess why buy an NFT?

Benjie Thomas:
So, let’s maybe for a moment step back and also think about the bigger picture around the fact that we have talked to our clients about their ability to ultimately carry this asset class in their treasury and we’ve gone through that experience. And so now that you have it in your treasury, what do you do with it? You want to be able to transact with it. And so the next stage or evolution in that process line is about being able to transact in that process. And so for us, we felt that the next way to be able to effectively show our ability to transact was to invest in an NFT. And again, similar to what we talked about in terms of moving into this asset class, you got to do your due diligence.

Benjie Thomas:
And so there were numerous use cases for NFTs, and we are already seeing organizations from retailers and sports leagues to auction houses, celebrities, and not-for-profits using NFTs to market their brand, recruit talent, create value, raise awareness for causes and connect with customers. And so by purchasing the NFT, we obtain the rights to use the images in various talent attraction and marketing campaigns, including recruitment drives to attract more women to KPMG. We also wanted to raise the profile of women leaders, which enhances our ability to attract and retain top talent, which is one reason we purchased our NFT from the world of women collecting. And so what’s it’s interesting too, we are seeing even our colleagues in Australia leveraging that NFT in the metaverse.

Nick Abrahams:
Oh, really?

Benjie Thomas:
And so you can walk into the metaverse in their kind of arena and you will see our NFT as frankly a piece of art, and people know that it’s attributed to KPMG. And so we’re quite excited about, one, the credibility that the market is building and demonstrating. And for us, we felt that developing an NFT strategy from inception to execution is the next stage in the process. But then also if I can help a client ultimately transact with their crypto assets and then ultimately acquire an NFT, you can imagine the third pillar which is the idea of helping clients actually create their own NFT. And then how do you distribute that NFT? And so naturally you can appreciate there is actually a thoughtful process on a storyline in terms of the approach we’re taking.

Nick Abrahams:
Yeah. Now that’s brilliant. The idea of once you’ve got the crypto, what do you do with it? And obviously with NFTs, it’s the first real digital asset class that we’ve seen. And I think what it appears to me with NFTs, particularly it feels like that’s opened the door, it’s a real use case for blockchain, for a lot of corporates that otherwise blockchain was always a solution in search of a problem. And now you’ve got particularly with big corporates using NFTs as an extension of the loyalty program, particularly for the gen Z and so forth. So now it makes sense. And I do feel there’s more to it.

Benjie Thomas:
And I agree with you Nick. I think when you think of this, and there’s obviously always perspective on both sides of the fed. And so people look at NFTs and they might call it clip art and nothing more than clip art. But what I actually fundamentally believe it does is it helps chart the path for people to understand the commercialization ability through a blockchain, through other avenues that more take place in our day to day. And so this is just helping show the viability of it through NFTs. And it’ll naturally transition into other parts of our day to day lives frankly.

Nick Abrahams:
Yeah. Now I think the tokenization of many businesses is something in the future. So with the NFT, could you give the listeners some sense of what your learnings were if they’re thinking about, if they’re in an organization that’s thinking about buying or indeed even minting I guess an NFT, what are some of the sort of issues that they should think about?

Benjie Thomas:
Yeah, absolutely. And as an organization, I think you got to tie it to what’s aligned within your own organization. And so in all the conversations or in all of our dialogue that we had, this was not about trying to generate a financial return by holding the asset in it becoming more valuable later on, if that happens, that’s great, that’s a secondary and nominal kind of perspective. The perspective is really about what’s the value for your organization and how do you leverage it? And so you have to do a tremendous amount of due diligence and you got to conduct a rigorous risk assessment. And there’s a number of considerations that you would think about around this. And so do you know who the artist or founders are or are they anonymous? Have they previously released a successful project before or not? Do you own the IP rights to the NFT?

Benjie Thomas:
So how engaged is the community around the project and are they active in things like Twitter chats and other social media mediums? Is there demand for the project? What blockchain is the project going to min on? What is the mint price? What is the roadmap for the project? What’s next? Are there utilities associated with the project? How do you select who you can min? And so how will you take custody and maintain custody of the NFT? Which are all things that we went through in the process of assessing and determining ultimately world of women and number 2681 as our ultimate asset.

Nick Abrahams:
Yeah. I think that is incredibly insightful because what I think people don’t necessarily those who aren’t super familiar with the NFT world is they don’t realize really the importance of what you said, they’re around community because unlike anything else that I’ve seen, this concept of the NFTs that are successful are those that have a community around them that has been built up on social media. And that’s why it’s become such a honey pot for the big consumer brands because they see that this is a way of driving a community and big brands struggle to create and to communicate with a community, and yet NFTs give you that and the successful ones do a great job with community, so well done there.

Nick Abrahams:
And I guess, just the final point on this topic which is, you’ve led by example and it can’t have been easy getting this concept past the governance regime and so forth that you have. But can you just talk about the philosophy around the idea of, you did it in order to learn about it so you could advise on it, how critical do you think it is in web three for organizations to actually be embracing it in some way on their own account before actually promoting themselves as advisors in the space?

Benjie Thomas:
Yeah, I think if you look at it from the category of being an advisor, I think it’s really important that you have experiential background. It’s easy to have educational background but I find experiential background is what really separates you from others. And so you have to kind of get your fingers into this and actually really go through the process to truly understand it because it’s new and different and it’s unlike anything that we have experienced before. I think the reality is the new iteration of the internet is already underway. And frankly, you think about everybody talking about the metaverse today and how the metaverse will play itself out in the future. Again, there’s a lot of conversation of a trend and trends take time to materialize, just when you think about the early days of the internet and lots of people talked about it, people talked about domain names, the importance of domain names, but really that didn’t involve itself until much later down the road.

Benjie Thomas:
And the ones who really ultimately were able to capitalize the opportunity were the ones who got themselves educated and learned through the process. And that’s what Jeff Bezos did with Amazon, started selling books and went through the experience of selling a book and understanding that it was easy to ship a book because you could throw it in an envelope and send it across. But now he had to go through the experience of being able to get someone to feel confident to transact on the internet and share their personal and credit card details, and actually on the other end receive an actual book on the other end and the transaction being completed without physically seeing each other. And so think about how that was in those early days and today, you give your credit card, like it’s candy on the internet to any website that you do see something you like and want to buy, and you expect that whatever you ultimately purchased will be delivered to you at some point in time.

Benjie Thomas:
And so the system has matured and it is evolved. And so this is just the next iteration. And the question is, how can companies leverage and play in this space and benefit their brand and important and more importantly, engage with their customers to create longevity, sustainability and growth? And so the only way that they can do that is by willing to experiment and learn and better understand Web3 and what it might actually mean for them, their products, their services, their offerings, and their people, and that’s exactly what we’re doing. And so as a firm, we need to be multifaceted in our capabilities some of what we offer to our clients. And this is just another added skill set that we bring to the table which is beyond education. But as I said, tied to experiences, and this is what we do. We always offer new and different services as the market changes and evolves. Sometimes we’re a little bit early and sometimes we need to be a fast follower, but for us in this particular instance, we’re early. Maybe we’re the next Amazon, who knows?

Nick Abrahams:
Look, I get a definite sense of your passion and enthusiasm for the space and it makes perfect sense. And I suspect this isn’t the last we’re going to see of KPMG Canada and Web3 three. And I’m getting a sense there could be Benjie coin coming.

Benjie Thomas:
It’s got a nice ring to it. It’s got a [inaudible 00:22:57]

Nick Abrahams:
Oh, it’s perfect. That would be a great project. Speak to the partners, they’ll love.

Benjie Thomas:
They’d love it. But unfortunately Nick, I think Elon’s probably going to beat me to that.

Nick Abrahams:
Okay. Could be right [inaudible 00:23:10] .

Benjie Thomas:
I think it’s probably going to be a Musk coin, we’ll call it a Musk coin.

Nick Abrahams:
Maybe just to finish off on sort of a topic that I know consumes people a lot where we see crypto bounce around a lot in terms of valuations. There’s enormous volatility in this space. I always think we need to think of it as a slightly rambunctious teenager because Bitcoin’s 13 years old. So we can’t expect it to be behaving in a mature fashion, but equally, the stock markets bounce around. What are your thoughts around the volatility and if we’re talking to clients, what would you say about that?

Benjie Thomas:
It’s interesting, not anything that’s in its early days is… You don’t have clear history to be able to measure and predict where it’s ultimately going to go. I think it’s a unique time for cryptocurrencies today because they’re also being impacted by what’s happening in our global markets as a whole. And let’s be honest with ourselves. We are just coming out, of a worldwide pandemic. And that is an experience that we have never gone through in the modern day and age with what we have available to us. And so I think for all of us, there’s unpredictability ahead across all asset classes. And so public markets, technical stocks, bonds, real estate and cryptocurrency, and so I think we have to be careful in terms of how we assess probably some of the negative impacts on the value of cryptocurrencies today, as a question of it’s the strength of the asset class versus really the economic climate and the impacts of that economic climate, because all asset classes are being negatively impacted.

Benjie Thomas:
And so I think the reality is we are what looks like a bearish market, but I think what people understand is that it’s normal and these times might present an opportunity similar to how people look at public markets. And you just have to appreciate that the markets have always gone up and down over time. But I think if you think about where these cryptocurrencies started to where they are today, I can tell you they’ve certainly grown over those 13 years, that’s for sure. And so you’re taking very short snippets of time versus taking a long term effect. And I think if you take a long-term effect like you look at the stock market, it has generally grown on average year after year.

Nick Abrahams:
Yeah. Now I agree. And I think the way that I sort of look at, is if we look at a top five-year time horizon from here, do we think in five years time that cryptocurrency in digital asset is going to be a thing? Surely they must be a thing. There’s already a lot of value in them. And so the pathway’s not going be linear, there’s going to be issues along the way, but in five years time, I think there’ll be great opportunities for us and particularly for those organizations like yours who’ve chosen to take a leadership role, I’m sure the spoils will be great. So Benjie, thank you very much for sharing the story of KPMG Canada’s Web3 with us. I congratulate you and your partners on what I think is a brilliant step and it’s clearly generated an enormous amount of interest, both at the press level but at the customer level. And so for that, well done and thank you very much for joining it.

Benjie Thomas:
Thank you again Nick for having me, I really enjoyed the conversation and looking forward to talking to you again and maybe next time you and I will be talking in the metaverse.

Nick Abrahams:
Now you’re talking the Benjie verse.

Benjie Thomas:
That’s right. The Benjie verse, exactly. [inaudible 00:27:30] Nick, it’s not cheap.

Nick Abrahams:
Thanks Benjie.

Benjie Thomas:
Thank you.

Nick Abrahams:
Thanks everyone for joining us. Okay. Well, I think that was great. Thank you for that.

Benjie Thomas:
Perfect.

Nick Abrahams:
Very good. Well, thank you very much. I appreciate it. It was a difficult day for you as well. Hopefully, I think was it your son?

Benjie Thomas:
Yeah, my son looks like it’s going to be okay she said.

Nick Abrahams:
Okay.

Benjie Thomas:
Got an appointment for three o’clock. So, she’s got an appointment for three o’clock that tells me it can’t be anything too serious.

Nick Abrahams:
Okay. Well, good luck with that.

Benjie Thomas:
Thank you.

Nick Abrahams:
Thank you and I’ll look forward to seeing your further exploits.

Benjie Thomas:
Yes sir. Absolutely.