KPMG Digital Assets

Digital assets are here to stay. Is your business ready?

Digital assets definition

Cryptographically secured digital representations of value or contractual rights that use some form of distributed ledger technology and can be transferred, stored or traded electronically.

The dramatic rise of digital assets over the past decade, has ushered in a period of innovation that is widely viewed as the next stage of the internet economy. Distributed ledger technology (DLT), the technological underpinning of digital assets, has been lauded as an enabler of transformation across numerous industries. This has led to widespread trialling and testing amongst traditional companies and growth in mainstream adoption. The technology is demonstrating value in diverse sectors such as retail, e-commerce, manufacturing, transport, media, and entertainment – and particularly for use cases within financial services.

KPMG is supporting traditional firms to test, develop, and launch digital assets products and services, as well as, helping digital assets solution providers develop their businesses. Over recent years, we have seen particular growth in financial services activity, with numerous global financial institutions launching digital assets products and platforms, demonstrating the maturity of the ecosystem. Several key focus areas have demonstrated mainstream potential, including, tokenised securities and funds, tokenised money (e.g., stablecoins, tokenised deposits, CBDCs), digital custody, crypto, trading solutions and several other emerging products.

The growth in digital assets activity within financial services, is further exemplified by the breadth of market participants operating in the space, with investment being made from banks, wealth and asset managers, fintechs, crypto-natives, and financial market infrastructure providers. KPMG has established deep relationships with firms across the ecosystem and collaborates closely with solution providers to support clients.

$4-5 trillion of tokenised securities

to be issued by 2030

Source: Citigroup
(March 2023)

134 countries & currency unions

representing 98% of global GDP, are exploring a CBDC

Source: Atlantic Council
(September 2024)

$3.2 billion in H1 2024

of funding for digital assets from Venture Capital, Private Equity and M&A

Source: KPMG
(August 2024)

Macro trends

Increasing regulatory clarity

Strong institutional demand

Product & service innovation

Cross-industry collaboration

Funding opportunities

Key use cases

The digital assets ecosystem can be viewed broadly across three primary themes:

Tokenisation

Digital Money

Digital Custody

Crypto

Innovation in digital assets markets has opened up diverse new possibilities for the digital representation and transfer of value. Over recent years focus has expanded beyond crypto and trading to digital assets which represent “real world” value. This has included the tokenisation of valuable physical assets like land, real estate, and art but increasingly firms are focusing on traditional financial assets such as equities, bonds, and funds.

Tokenised securities and funds

The tokenisation of securities and funds brings many proposed key benefits, which are starting to be demonstrated in issuances across open markets, for example;

Enhanced liquidity
Greater accessibility
Cost efficiency
Speed of settlement
Transparency and security
Global reach

The landscape of digital finance is going through a period of remarkable innovation, with the design of money itself being reconsidered. New forms of digital money are being tested, explored and used in real world transactions, leading to increasing regulatory attention and clarity.

Digital money is a key enabler in unlocking the benefits of asset tokenisation and delivering on the potential of the digital assets ecosystem. Monetary instruments need to exist on-chain to provide an effective cash leg in transactions to facilitate trading, clearing, and settlement across various asset classes.

Stablecoins

Stablecoins are a form of digital assets, designed to maintain a stable value relative to a real-world asset, often a fiat currency such as USD or GBP. They are commonly issued by private institutions and are backed by underlying assets held by the issuer.

On-chain cash leg to execute digital assets transactions, gaining prominence as a cross-border payment instrument, increasing transaction speed and reducing costs.

Tokenised deposits

Tokenised deposits are issued by commercial banks and are representations of fiat assets held in bank accounts - 90% of money in use today exists in the form of bank deposits.

Scope to enable significant levels of automation, provide cost reductions and deliver new products and services.

Central Bank Digital Currencies (CBDCs)

CBDCs are a digital form of sovereign currency which is issued and backed by a central bank and serves as legal tender.

Retail CBDC

New form of digital cash which enables retail users to leverage the benefits of Central Bank money in a digital age.

Wholesale CBDC

On-chain cash leg for settling wholesale transactions.

Digital custody is a core component of digital assets markets and contrasts with traditional financial services custody. Digital custody involves the secure management and safekeeping of private keys which control the underlying assets within the digital assets ecosystem. This includes a range of solutions, including self-hosted wallets, hot and cold wallets, non-custodial wallets, and platform wallets, which offer various trade-offs around security and accessibility.

Institutional adoption necessitates strong and secure custody solutions. These solutions leverage advanced technology components including Hardware Security Modules (HSMs), Multi-signature configurations, and Multi-Party Computation (MPC), coupled with various storage strategies such as hot, cold, and warm storage implementations.

Crypto emerged as a novel financial innovation, enabling individuals to transact without intermediaries. It has developed into a distinct asset class, attracting large institutional investors seeking diversification and enhanced returns. Unlike traditional asset classes, crypto offers unique benefits, including new ways to seek yield through decentralised finance applications, 24/7 trading and low barriers to entry.

Many of these highly liquid digital assets have a limited supply, which stands in stark contrast to traditional asset classes. Prior to the emergence of Bitcoin, scarce assets were primarily limited to precious metals like gold.

As digital assets markets mature, more investors are recognising crypto as a compelling store of value and hedge against inflation and economic uncertainty. Recently, the success of crypto exchange-traded products have drawn interest and inflows to crypto markets. This trend highlights the growing confidence in crypto as a viable component of a diversified investment strategy, signalling a significant shift in the landscape of asset management and challenging conventional financial paradigms.

Our Services

At KPMG, our specialised team of professionals spans multiple disciplines, addressing critical considerations surrounding digital assets for our clients. We emphasise collaborative approaches across projects to deliver comprehensive advice, ensuring a holistic perspective is provided at every stage.

The Digital Assets Consulting team works across the financial ecosystem - with banks, wealth and asset managers, PSPs, FMIs, fintechs and crypto-native firms - to develop digital assets products and services.

The team's expertise spans a diverse range of digital assets topics, including:

Securities and fund tokenisation
The issuance and application of digital money (e.g., stablecoins, tokenised deposits, CBDCs) for settlement and payments
Digital custody
Digital assets risk and regulation
ESG-linked digital assets
Novel digital assets use cases (e.g., real estate tokenisation, IP)

We offer a breadth of advisory services, such as:

Digital assets strategy and operating model design
Proof of concept development, scale-up and project management
Registrations and authorisations
Regulatory insights and analysis
Financial crime and regulatory reporting
Risk management, compliance and controls optimisation
Vendor selection and technology implementation

Please contact Sinchan.Banerjee@kpmg.co.uk for inquiries, requests for proposals, or details of KPMG digital assets events.

The Financial Services Tax team works across the financial ecosystem - with banks, wealth and asset managers, custodians, PSPs, FMIs, Fintechs and Crypto-native firms.

The Tax team also advises non-financial services groups on digital asset related issues, including the impact of investing in digital assets and accepting digital assets as payment for services.

The team's expertise spans a diverse range of digital asset topics and taxes, including:
Corporation tax (including digital services tax) and VAT advice on the treatment of digital asset products and services, including tokenisation, ICOs and digital custody.
VAT liability of digital assets businesses including analysing VAT recovery, managing VAT on intragroup charges and assisting with HMRC negotiations in relation to the availability of VAT exemptions.
Horizon scanning, and advice on the impact of developing tax legislation and regulation such as in relation to DeFi.
Restructuring of corporate groups, whether for tax efficiencies, regulatory or commercial reasons.
Transfer pricing policy design, including working with other tax teams to minimise any VAT leakage and manage permanent establishment risk within the group.
Tax compliance, helping corporate clients (financial services and non-financial services) and private clients & family offices comply with tax filing obligations in respect of their digital assets.
Identifying and implementing optimised legal structures within preferred jurisdictions to acquire, own and transfer digital assets for corporate and private clients.
Operational tax issues and assisting in ensuring compliance with developing legislation and guidance on reporting frameworks such as CARF, whether OECD, EU, or UK.

In addition we can help with:

Making voluntary disclosures to HMRC in relation to potential undeclared historic tax liabilities incurred by clients
Managing HMRC enquiries
Non-statutory tax clearances and liaising with HMRC in relation to digital asset related issues

Please contact susanne.dixon@kpmg.co.uk for inquiries, requests for proposals, or details of KPMG digital assets events.

The Financial Services Regulatory legal team works across the financial ecosystem - with banks, PSPs, FMIs, fintechs and crypto-native firms.

The team's expertise spans a diverse range of digital assets topics, including:

Authorisation and registration regimes, perimeter analysis, product design and, structuring, financial promotions, AML requirements.
Legal implications of proposed digital assets structures, for example, working with tax consultants on reporting requirements in relation to digital assets.
Horizon scanning, and advice on impact of emerging regulations such as on stablecoins, fund tokenisation, resolving conflict of laws issues.
Tax and legal implications of tokenisation of financial instruments. We support clients by working with technology, consulting, tax colleagues to advise on blockchain and DLT technologies to unlock the speed and efficiency of frictionless cross border payments & settlement using DLT.
Advise on risk management framework for digital assets in key risk areas, including prudential, operational, technological, fraud and conduct risk.
Tax and legal implications of digital fund structures, digital custody, financial promotion rules.
Advising on digital money use cases, and legal and tax implications.
MiFIR and EMIR requirements as applicable to derivatives linked to crypto assets.

In addition we can help with:

Liasing and responding to regulators
Strategy for compliance with financial promotion rules
Finalisation of cross border regulatory strategy in line with business requirements
Working across tax, consulting to validate legal entity strategy
Benchmarking customer and vendor terms and conditions

Please contact Indraneel.BasuMajumdar@kpmg.co.uk for inquiries, requests for proposals, or details of KPMG digital assets events.

Our team has experience of working across the financial ecosystem, including challenger banks, trading platforms, payment service providers, FinTechs, and crypto-native firms on a number of digital assets use cases.

Our expertise spans a diverse range of digital assets topics, including: cryptocurrency OTC trading, cryptocurrency market-making; exotic cryptocurrency derivative trading; Simple Agreements for Future Tokens ("SAFTs"); Simple Agreements for Future Equities ("SAFTEs"); securities and fund tokenisation; the application of digital money (e.g., stablecoins, tokenised deposits) for settlement and payments; and digital custody.

We offer a breadth of advisory services, such as:

Technical accounting support in relation to understanding the unique characteristics of cryptocurrencies and blockchain transactions;
Preparing accounting memos and transaction based documentation.
Assistance with financial reporting, including balance sheets, income statements, and cash flow statements that account for cryptocurrency holdings.
Training professionals in the digital assets ecosystem on the most recent developments in local and international accounting frameworks for cryptocurrencies and other digital assets.
Assessment of business strategy and planning, as well was target operating model design and implementation.

Please contact Charlotte.Lo@KPMG.co.uk for inquiries, requests for proposals, or details of KPMG digital assets events.

Our vision is to be the most trusted audit firm by our regulators, the businesses we audit, investors, the public and our people. Quality is the cornerstone of our audit services, and our digital assets Audit team has deep industry expertise and a proven track record in pioneering audit methodologies in the sector. We understand the risks associated with digital assets and are connected globally to offer a best-in-class audit service of the highest quality.

Our ability deliver quality is underpinned by industry expertise and use of cutting-edge technology, such as our proprietary digital assets tool (KPMG Chain Fusion). Chain Fusion integrates with DLT API services to support us in evaluating existence and ownership of assets on in-scope blockchains, and valuation capabilities which enable us to independently re-price many cryptocurrencies and stablecoins on a large scale.

Please contact Scott Flavin (Head of digital assets Audit - Scott.Flavin@kpmg.co.uk) for inquiries or requests for proposal.

Why KPMG?

KPMG has a wealth of digital assets experience across financial services and other industries, offering advisory services, tax and accounting guidance, and legal and regulatory compliance insights.

This breadth of expertise enables clients to effectively implement transformational business, technology and organisational change. Specifically, when launching innovative new digital assets products and services, this experience can help clients: identify the correct strategy and business model; adapt to changing regulatory requirements; identify and manage emerging risks; and plan for their tax and accounting obligations prudently.

By bringing together the expertise across capabilities within KPMG, we support firms across the digital assets market, including, traditional financial services firms, fintechs, FMIs, and crypto-natives and respond to a wide range of client requirements. This interdisciplinary approach provides clients with a full view of all relevant considerations for effective business and technology transformation.

01

Market leading advisors across 145 jurisdictions with detailed knowledge and experience working with leading Financial Services institutions across a range of digital assets topics.

02

Extensive vendor network across digital custody, tokenisation, risk & regulation, and digital money - we can help you to select the right partners to achieve your goals.

03

Bespoke, tailored insights from our Regulatory Insights Centre, who have experience developing policy and regulation with UK and international regulators.