UK accounting firms must prepare for crypto “tidal wave”

Accounting firms in the UK must take heed of the direction of travel towards cryptocurrencies and digital assets to remain competitive, according to Joe David, founder and managing director at Nephos Group.

“Because crypto is becoming more mainstream, accountants are getting more questions about it and realising that this isn’t an area you can just pick up and put back down.

“It’s a tidal wave that’s going to hit a lot of firms if they’re not paying attention.”

Hailing crypto as “the future of finance”, David argues that firms of all sizes must be open to making advances in the space – whether that be developing a fully-fledged service arm, or merely bolstering their understanding of the subject.

KPMG UK has made significant strides in this area by strengthening its crypto and payments team, appointing former CryptoUK executive director Ian Taylor as the head of its digital assets team.

Speaking to Accountancy Age shortly after his appointment in May, Taylor remarked that accounting firms have “no choice” but to start developing in-house capabilities within the crypto and digital assets space.

“Twenty years ago, everyone was talking about needing an internet strategy and an ecommerce strategy. The same discussions are being had now in corporates about crypto.”

Even under an uncertain regulatory environment, the adoption of digital assets in the UK has surged in recent months. According to new research from crypto exchange platform Coinbase, a third (33%) of consumers in the UK own some form of cryptocurrency asset – up from 29% in October 2021. Additionally, 61% of consumers plan to increase their holdings over the next 12 months, compared to 54% recorded in October 2021.

A similar pattern is emerging among UK businesses and financial institutions. Research published by Bitstamp in April found that, of 250 companies surveyed (including banks, hedge funds, pension fund managers and brokerage firms), around 70% said they currently trust cryptocurrency products.

And despite a historically indefinite approach to digital assets, the UK government set out a plan to make the UK a global cryptoasset technology hub in April.

The plans include new regulations for stablecoins, a Royal Mint NFT, and a sandbox to help firms experiment and innovate.

“The first use case of crypto is finance, and so if there’s any banks or asset managers that don’t currently have a product or service, they’re thinking about it,” Taylor said.

“Most people are starting to realise this is huge, so it’s perfectly timed for me to come in and help.”

Taylor’s appointment is the latest in a string of crypto-related development for the Big Four firm, with it launching KPMG Chain Fusion, a suite of analytics capabilities aimed at the institutional cryptoasset market.

Talent and education are key

Taylor goes on to outline the key elements of KPMG UK’s strategy for its growing digital assets arm, explaining that phase one entailed a “really progressive” move to hire a dedicated resource to lead the division – a first for the UK accounting market.

Phase two will address its go-to-market strategy for the service offering, he says, adding that tackling the negative stigma and resultant “low risk appetite” for crypto among clients is key.

“It’s not just about consulting – I like to think that we go with them [clients] on a journey. So, another aspect we’ll be looking at is how we can develop a risk appetite to work with these new businesses, because crypto unfortunately has this narrative that there’s consumer harm and illicit activity involved.”

According to David, Nephos Group is taking a similar strategic approach to bolstering its crypto service offering, particularly with regards to talent acquisition.

“It depends on the firm, but we’re focusing on trying to be number one, so we’re aggressively hiring in that space.”

Nephos Group is also considering the prospect of acquiring a series of smaller, one-man-band practices with a expertise in cryptocurrency, David adds.

However, he is quick to distinguish between the firm’s “number one” crypto specialist ambitions and that of an average professional services practice, noting that all accountants should be aspiring to develop a basic working knowledge of digital assets.

“Not everyone needs to dedicate their entire lives to crypto like we have as a firm – just ensure that you’ve got some high-level knowledge on the key areas.”

However, he admits there is a healthy middle-ground to be struck, and that too simplistic an approach could be detrimental.

Too many accountants rely on their understanding of how crypto is traded – “the easy part” – rather than commonly misunderstood areas such as decentralised finance (DeFi) and liquidity pools, he says.

This is largely the basis for what David describes as Nephos Group’s “pro-education” approach to crypto and digital assets. As a result, the firm is set to release a package of educational content for its clients and the wider accounting industry in the near future.

“Clients are increasingly investing in more of these weird and wonderful things, and it’s very naïve to assume that just knowing what crypto is and how to transact it is enough,” says David.

“It’s really important that people focus more on understanding the bigger picture of crypto, otherwise they’re going to cause their clients problems.