Speaker 1: If you ask anybody in the leadership position at a
Speaker 1: large financial institution, they know the answer. Yes, I'm going
Speaker 1: to tokenize everything. All of my assets are going to
Speaker 1: be on the blockchain. They see the future, they know
Speaker 1: exactly where it's going.
Speaker 2: I'm curious how KPMNG as well as those clients are
Speaker 2: viewing the technology or where we're at in the timeline.
Speaker 2: Is it simply a proof of concept or they recognize, Hey,
Speaker 2: this is the future we need to start building.
Speaker 1: Yeah, we're not full speed ahead yet, but we're definitely
Speaker 1: well past the moment of inertia.
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Speaker 2: Hey, everybody, welcome into the Thinking Crypto Podcast. I'm your host,
Speaker 2: Tony Edward, and joining me today is Tony Tutz, who
Speaker 2: is the principle of KPMG's Alternative Investment tax practice and
Speaker 2: leader of the Digital Asset tax practice. KPMG is one
Speaker 2: of the big four professional account services companies in the world,
Speaker 2: and Tony is a renowned crypto authority with over twenty
Speaker 2: years of experience advising alternative investment clients on tax structuring
Speaker 2: and digital asset strategy. Tony, great to have you, Thanks, Tony,
Speaker 2: great to be here. Thanks for me having me here today.
Speaker 1: Yeah.
Speaker 2: Isn't it a bit weirre that we're both named Tony
Speaker 2: and we're you know, it's going to be back and forth,
Speaker 2: Tony Tony.
Speaker 1: That's all right. I love it, Love that Tony's out there.
Speaker 1: Absolutely well.
Speaker 2: I'm excited for this conversation to dive into KPMG's digital
Speaker 2: asset solutions and services and much more. I would love
Speaker 2: to start with your background. Tell us about where you're
Speaker 2: from and your professional background.
Speaker 1: Yeah. Sure, from the Northeast, born in New York, grew
Speaker 1: up in New Jersey, still in New York, so I
Speaker 1: never really went very far. I am a tax lawyer
Speaker 1: by background, So even though I do work at a
Speaker 1: professional accounting firm, not an accountant, not a CPA, I
Speaker 1: am a lawyer. Yeah, and you know, I've been doing
Speaker 1: tax advisory work inside the financial services realm my entire career.
Speaker 1: I probably got into crypto around twenty fourteen ish and
Speaker 1: never really looked back, you know, at KPMG. I mean
Speaker 1: it really took off probably around twenty seventeen, and we
Speaker 1: have ever since that time. I'm invested a large amount
Speaker 1: of time and money into the practice. As you might
Speaker 1: imagine that this scope of people out there who are
Speaker 1: very well versed in accounting, tax and advisory, which is
Speaker 1: our core functions, that also are very well versed at
Speaker 1: crypto as not a lot of people. So there's the
Speaker 1: fight for talent is it is fierce out there, and
Speaker 1: you have to really know your way around. And so
Speaker 1: we've done a great job of acquiring that talent here.
Speaker 1: So it's been very good. That's amazing.
Speaker 2: So you mentioned you got into the industry in twenty fourteen,
Speaker 2: so Tony, what was your first encounter and that aha
Speaker 2: moment for you?
Speaker 1: Yeah, No, the aha moment came later, But the twenty
Speaker 1: fourteen was really that. You know, my background, since I
Speaker 1: was always in financial services when I first started in
Speaker 1: this business, I'm going to age myself. But it was
Speaker 1: that time where derivatives were becoming very big on Wall Street,
Speaker 1: and the derivatives market, much like the crypto market today,
Speaker 1: at that time, didn't have a lot of rules for
Speaker 1: so we were trying to play not just in tax
Speaker 1: but also with the SEC the CFTC, you know, basically
Speaker 1: going by analogy, Well it kind of looks like this,
Speaker 1: it kind of looks well, maybe we could treat it
Speaker 1: like that. And then slowly but surely we got some
Speaker 1: rules about that. And so I do got this large
Speaker 1: financial product background, and so when crypto questions started to
Speaker 1: come to the four, you know, people pointed to me
Speaker 1: and said, well, you know it should be similar, why
Speaker 1: don't you take a crack at it. So I did
Speaker 1: start getting into it, but that was really from a
Speaker 1: kind of tax wunk type of view. And then finally,
Speaker 1: like I said, around twenty seventeen, things really started to
Speaker 1: take off. I started to spend a lot more time
Speaker 1: with it. I started to invest in it myself. I
Speaker 1: should have invested in twenty fourteen, Tony. That would have
Speaker 1: been much better and I wouldn't be working today. That's
Speaker 1: another story, so but it did that. So basically, maybe
Speaker 1: twenty seventeen the aha moment went off and you know
Speaker 1: you basically and by the way, shame on me. I
Speaker 1: should have recognized in twenty fourteen because I was focused
Speaker 1: on crypto when I really should have been focused on
Speaker 1: blockchain technology. Right, That's what I should have saw as
Speaker 1: what's coming down the road. Forget crypto altogether. If you
Speaker 1: look at our core financial services companies, I don't care
Speaker 1: if it's asked at management, it's banking, it's payments, whatever.
Speaker 1: It's all about distributed ledger technology and how that can
Speaker 1: help that all those traditional businesses function at a much
Speaker 1: more efficient rate.
Speaker 2: That's such a great point because I think sometimes we
Speaker 2: put the card before the horse, where people are so
Speaker 2: focused on the token they forget guess what. The token
Speaker 2: wouldn't exist if there wasn't a network, a blockchain that's
Speaker 2: actually functioning that you can build on. Right, and we often,
Speaker 2: well majority of people look at the technology as oh
Speaker 2: I can get this token, but they're missing the bigger picture.
Speaker 2: They're missing the forest for the trees that the network
Speaker 2: that it's working globally twenty four to seven, that you
Speaker 2: can build on to change the way people transact with
Speaker 2: each other and much more.
Speaker 1: Yeah. No, absolutely, in fact, for our more traditional clients.
Speaker 1: So the large bold bracket banks, if you will, you know,
Speaker 1: in the large asset managers for them not not you know,
Speaker 1: disparage crypto in any way, shape or form, but they
Speaker 1: don't care. They just don't even care about crypto because
Speaker 1: that's really very secondary to their world with you know,
Speaker 1: with the things that are happening now that's important to them.
Speaker 1: They're going to tokenize the real world assets, stocks, bonds, currencies, commodities,
Speaker 1: and they're going to run everything on blockchain. And you know,
Speaker 1: for some of the things that they do, if you
Speaker 1: think about it, you know, we're most people everyday people.
Speaker 1: They think about stocks and bombs, Well, those already trade
Speaker 1: pretty fast. Uh, there's room for improvement for sure, and
Speaker 1: they will be tokenized eventually. But think about the things
Speaker 1: that don't trade fast, the things that trade clunky, and
Speaker 1: I'm talking about you know, bank loans, you know, clos
Speaker 1: private equity interests. You know, try moving those you know,
Speaker 1: those stack of documents takes weeks. You know, if I
Speaker 1: can reduce that to seconds and I can put it
Speaker 1: in a form that maybe I can post up some
Speaker 1: third party is collateral for a loan. I've just introduced
Speaker 1: liquidity where there was none. So you know, for the
Speaker 1: traditional finance players, that's the big deal. Crypto is nice
Speaker 1: to have, but that's not the prize. Yeah.
Speaker 2: Absolutely, And you know you mentioned a lot of the
Speaker 2: firms that you're working with, and so far they're looking
Speaker 2: to tokenize, they're looking to leverage blocking technology. I'm curious
Speaker 2: how KPMG as well as those clients are viewing the
Speaker 2: technology or where we're at in the timeline. I guess
Speaker 2: is it simply a proof of concept or they recognize, hey,
Speaker 2: this is the future we need to start building. It's
Speaker 2: as if that, you know, when folks had that moment
Speaker 2: with the internet, guess what, we got to start moving
Speaker 2: our business online as well to get exposure.
Speaker 1: Is it at?
Speaker 3: Are we at that point?
Speaker 1: Yeah? We're not full speed ahead yet, but we're definitely
Speaker 1: well past the moment of inertia for sure, because if
Speaker 1: you ask anybody, anybody in the leadership position at a
Speaker 1: large financial institution, they know the answer. Yes, I'm going
Speaker 1: to tokenize everything. All of my assets are going to
Speaker 1: be on the blockchain. So they see the future, they
Speaker 1: know exactly where it's going. We're not quite there yet though,
Speaker 1: because there's some implementing rules that they need, because most
Speaker 1: of these entities that we're talking about, and at least
Speaker 1: in the financial services sphere, they're regulated, highly regulated, and
Speaker 1: so until each of the regulators clarifies what they're able
Speaker 1: to do with blockchain, it's slowing it down. So we're
Speaker 1: still we're trying to run, but our feet are still
Speaker 1: in the mud. But I think that's probably twelve to
Speaker 1: eighteen months of clearing up the mud and getting us,
Speaker 1: you know, really getting some traction here.
Speaker 3: Pardon the interruption. Hi, I'm Tony. I'm the host of
Speaker 3: the Thinking Crypto podcast. I wanted to ask you if
Speaker 3: you can please support the podcast by hitting the like
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Speaker 3: the content. Thank you so much.
Speaker 2: Give us an overview of KPMG's different services that you
Speaker 2: provide to digital asset firms and even are you leveraging
Speaker 2: blockchain internally and things like that.
Speaker 1: Yeah, so the way that our client, first of all,
Speaker 1: our service is right pretty simple. At the outset, which
Speaker 1: is audit, tax and advisory, sounds fairly simple. But when
Speaker 1: you break those open, what you'll see is like for audit,
Speaker 1: for example, sure everybody knows if you have a financial
Speaker 1: statement and people care about it, it's got to be
Speaker 1: audited by a third party. We do that, but we
Speaker 1: also do like internal control attestations. You might hear that
Speaker 1: referred to as like sock onn sock too, So all
Speaker 1: the service providers kind of need that. We even do
Speaker 1: inside the digital asset round with the stable coin asset
Speaker 1: reserve attestations things of that nature. So that's where the
Speaker 1: audit at testation stuff is coming from. But even in tax,
Speaker 1: I mean, we do tax consulting and tax compliance for sure,
Speaker 1: but even inside of that it gets broken out into
Speaker 1: smaller sectors. For example, you know, federal, international, state, and
Speaker 1: local indirect tax, which is your sales tax, back tax,
Speaker 1: things like that, transfer pricing, valuation, and like I said,
Speaker 1: for the past you know, eight nine years, I've been
Speaker 1: hiring people all around the globe, so it's not just
Speaker 1: the United States, it's a global operation. And I've been
Speaker 1: hiring people with digital assets, specialties and special knowledge in
Speaker 1: each of these areas. So if you think about that,
Speaker 1: that's a lot of people. And then finally on our
Speaker 1: advisory side, which is consulting, I mean that's everything from
Speaker 1: you know, strategy consulting, operating models, compliance and regulatory consulting.
Speaker 1: Building out and this is a big one by the way.
Speaker 1: People don't like to hear it, but it's true, building
Speaker 1: out the B SAAA, M L or KYC. You know,
Speaker 1: even though you're on chain, these things still really matter.
Speaker 1: You still have to you know, get people's information, know
Speaker 1: who you're dealing with, make sure we're not dealing with
Speaker 1: sanctioned people and entities. And then finally, as we start
Speaker 1: doing like real world asset tokenization, enablement and integration become
Speaker 1: really important. Right because when you look inside pick your
Speaker 1: largest bank in the world, you'll see like myriad of
Speaker 1: systems that they have to track all their assets and
Speaker 1: do all the operations that they have to do. And
Speaker 1: now they're doing things on chain and they need to
Speaker 1: get that on chain information into the legacy system so
Speaker 1: they can do their regular reporting and everything, or vice
Speaker 1: versa as the case may be. But that's a huge challenge,
Speaker 1: and so Advisory Group is doing all that kind of
Speaker 1: stuff and then of course custody and security huge have
Speaker 1: to be able to do that. So being able to
Speaker 1: get these institutions to be able to do things within
Speaker 1: their regulatory framework and do them safely and do the
Speaker 1: reporting that they need to do. All you know, to
Speaker 1: any stakeholder, whether it's a shareholder or it's a regulator,
Speaker 1: are taxed. So that's where KPMG is helping inside each
Speaker 1: of those side hopes. Yeah, that's incredible.
Speaker 2: You know you mentioned the onset attestation for like stable
Speaker 2: coin issuers, and I know you know that's been a
Speaker 2: pain point in the early days of the crypto industry.
Speaker 2: But now to your point with the regulators, you know,
Speaker 2: putting out the guidance and and the rules of the
Speaker 2: road and so forth, these your services are going to
Speaker 2: be so important because I often state, you know, don't
Speaker 2: trust verify right, especially when it comes to digital assets.
Speaker 2: So it's really great that you're helping a lot of
Speaker 2: firms to do that and there can be more transparency.
Speaker 1: Yeah, that was one of the one of the key
Speaker 1: things that were in the Genius Act was you know,
Speaker 1: with what normal people are responsible people in this space
Speaker 1: always thought you should have anyway, right, I should have
Speaker 1: some third party verify that these assets are here, and
Speaker 1: hopefully you're also even verifying that the issuer is meeting
Speaker 1: all of its requirements and has its loan, internal controls,
Speaker 1: and it's doing everything right on its side. So in
Speaker 1: the end, that's part of what Genius brings as a requirement.
Speaker 2: Now, I know you can't give names of the clients,
Speaker 2: but I'm curious what type of companies and industries and
Speaker 2: these folks are working or leveraging your services.
Speaker 1: Yeah, so at this point I believe it or not.
Speaker 1: I mean, yes, it was just really the financial institutions
Speaker 1: and and even within financial institutions, really the big users
Speaker 1: of our services on early days. As you might imagine,
Speaker 1: We're the venture capital funds that were investing into this space,
Speaker 1: and the hedge funds that wanted to trade the liquid
Speaker 1: tokens that was those were the big users. But at
Speaker 1: this point it runs the gamut everything from like the
Speaker 1: development the blockchain development and app companies, uh, the infrastructure
Speaker 1: and security providers, you know, the mining companies, the staking providers. Now,
Speaker 1: of course we have these digital asset treasury companies. They
Speaker 1: suck up a lot of time, but those are great clients,
Speaker 1: by the way. Public companies, we love that kind of stuff.
Speaker 1: The asset managers, both public and private, by the way.
Speaker 1: So it's nice that we've been doing public funds outside
Speaker 1: the United States for several years now, but as you know,
Speaker 1: right now in the United States we have public funds.
Speaker 1: That's great, but we also do the private funds, like
Speaker 1: I said, and then of course banking and payments that's huge.
Speaker 1: That's a big space for that right now. But it
Speaker 1: also believe it or not, it routinely now, I would say,
Speaker 1: not just spotty, routinely. We are speaking to fortune two
Speaker 1: point fifty global enterprise type of clients as they start
Speaker 1: to use some form of digital asset in their own
Speaker 1: business model. And it is happening regularly.
Speaker 2: So safe to assume you guys have been seeing a
Speaker 2: lot of demand, I'm sure, especially over the past here
Speaker 2: you know, obviously we've been in a much more friendlier
Speaker 2: environment for crypto here in the United States. But I
Speaker 2: know you you're a global business. But even the EU
Speaker 2: they passed the MECA regulations. I'm sure there's a lot
Speaker 2: of demand for your services. Yeah, and it is a
Speaker 2: global operation, and so you know some of the so
Speaker 2: implementing things like MICA and KARF by the way, which
Speaker 2: is an OACD reporting requirement, that's full steam ahead. We've
Speaker 2: been doing that for a while now, we're doing that today.
Speaker 2: A lot of the US regulations, believe it or not,
Speaker 2: even though we hear about them all the time, they're
Speaker 2: not quite big, implemented yet or on the path to
Speaker 2: doing that. So we're doing some of that in the
Speaker 2: United States as well.
Speaker 1: You know. Funnily enough, in the last administration, we ended
Speaker 1: up by demand helping clients some move out of the
Speaker 1: United States, and now given the current administration, we're moving
Speaker 1: them back to the United States. But you know that
Speaker 1: as main it's busy time to many, as you might imagine,
Speaker 1: busy time all around from like you said, from the
Speaker 1: very smallest companies, the ones that have the ideas that
Speaker 1: are developing their tech companies you know, to pick your
Speaker 1: nice fortune two fifty companies. So it's it's robusts for sure.
Speaker 2: And how are you handling the different blockchain networks, the
Speaker 2: different types of assets internally, because it seems like it's
Speaker 2: a lot to handle, right, because there's so many blockchains
Speaker 2: out there, Tony. Obviously there's your top ones like Ethan,
Speaker 2: Salona and much more. Plus you have stable coins, plus
Speaker 2: you have tokenized assets, plus you may have NFTs and
Speaker 2: name coins and all these things. How are you handling
Speaker 2: all of these differ and components.
Speaker 1: Yeah, so you know, we we end up having to
Speaker 1: do a few things. One, having a group of people
Speaker 1: who just stays on top of this, right, because things
Speaker 1: are changing every day. The interoperability is an issue for
Speaker 1: our clients and it's something we try to help with,
Speaker 1: but it impacts us on a different way, which is
Speaker 1: especially on our audit side. Right, if there's a new
Speaker 1: chain here or there, there's a new token, if it's
Speaker 1: not supported by our tools, well then we can't verify it.
Speaker 1: We can't you see it, and that's not acceptable. And
Speaker 1: so what we've done at KPMG is we found that
Speaker 1: outside tools, it's just too hard to use you'd have
Speaker 1: to pick up so many of them and keep on
Speaker 1: top of them, and then of course we'd have to
Speaker 1: verify that they're working correctly. We said, forget it, we'll
Speaker 1: build our own. So long ago we built our own
Speaker 1: blockchain explore. We call it chain fusion. This allows us
Speaker 1: to actually just go on chain and you know, we
Speaker 1: when we have a team of developers that's constantly updating
Speaker 1: that for everything that we need so that we can
Speaker 1: see things and do things. It also the the way
Speaker 1: things are rapidly evolving and that not everything is on
Speaker 1: the same chain kind of thing also creates another problem
Speaker 1: for us, which is for our clients too. For those
Speaker 1: regulated clients who hold those assets, a lot of them
Speaker 1: have to hold it in in what's called the qualified custodian.
Speaker 1: But then what happens is if it's new, the custodian
Speaker 1: didn't update their system, so the qualified custodia can't hold
Speaker 1: the asset and they end up having to hold it
Speaker 1: you know what we call self custody. Auditors hate self custody, right,
Speaker 1: it's just too it's dangerous. So you know, we that's
Speaker 1: something we are all dealing with, you know, as an
Speaker 1: industry and hopefully we get to a place one day
Speaker 1: where you know, it's a little more generic interoperability and
Speaker 1: we don't have those kind of one off problems. Yeah,
Speaker 1: for sure.
Speaker 2: And it's really great to hear that you guys, guys
Speaker 2: have built your own proprietary blockchain explorer, because I'm always curious,
Speaker 2: you know, how firms like yourself handled that. You know,
Speaker 2: even myself as someone who's in crypto every day, to
Speaker 2: keep up with all these things, it's just a lot
Speaker 2: of work. But I guess that's where you mentioned earlier,
Speaker 2: you're hiring folks across the globe to help you do
Speaker 2: all these things.
Speaker 1: Yeah, and you know, if you think about our business,
Speaker 1: you would think the people that we hire are all,
Speaker 1: you know, tax or audit type people one tape or another.
Speaker 1: But here's the know you know, and there's other examples too,
Speaker 1: But this is a prime example where I have to
Speaker 1: go out and I have to hire engineers. I have
Speaker 1: to hire people who are blockchain specialists. They may not
Speaker 1: know anything about auditing or tax With that, it's okay,
Speaker 1: I need their services here. So yeah, no, it's definitely critical.
Speaker 3: Are you leveraging AI in any way to help you
Speaker 3: do all these.
Speaker 1: Yeah, So AI is in everything that we do. I mean,
Speaker 1: I mean not just in this space as you imagine
Speaker 1: any professional services firm. I don't care if you're a
Speaker 1: law firm, accounty firm, architecture. From the way the business
Speaker 1: model is, you know, your time times your rate equals
Speaker 1: your revenue. So anything you can do on this to
Speaker 1: bring the time down goes right to the bottom line.
Speaker 1: So yes, I mean it's a it's a huge focus
Speaker 1: and trying very hard. I mean, one of the things
Speaker 1: that AI is really cool, but you know a lot
Speaker 1: of the tools that are out there in the market
Speaker 1: we really can't use and not a lot of people
Speaker 1: like us can't use because we have sensitive client data
Speaker 1: that can't be shared and so and then also the
Speaker 1: other issue with the large language models is that you know,
Speaker 1: it's scraping data from things that might not be correct,
Speaker 1: and so you end up building your own propriet harry
Speaker 1: type of AI tool. We are not alone in that,
Speaker 1: all the big four doing that. Luckily, you know we
Speaker 1: started early. We've got a pretty good way down. But yes,
Speaker 1: to answer your question, it's integrated and everything we can
Speaker 1: do and wherever we can see a spot to add
Speaker 1: efficiency by using it. Yes, and this is a great actually,
Speaker 1: as we were just saying, you know, things here move
Speaker 1: so fast and there's so many new things, and you
Speaker 1: try to keep up as much as you can. But
Speaker 1: I can have AI screwing data from all over the
Speaker 1: places and synthesizing that for me so that every morning
Speaker 1: I can get a nice reports and you know, here
Speaker 1: are some of the new things that you know hit
Speaker 1: the market today, and you know, basically save a little
Speaker 1: time that way, and then try to pick out what's
Speaker 1: really important for us.
Speaker 2: Yeah, it's running twenty four to seven, doesn't need to
Speaker 2: sleep or eat, and I could have that submarine ready
Speaker 2: for you when you're ready to clock in.
Speaker 1: Yeah. No, And I think you know some of our clients,
Speaker 1: especially in asset management in banking, you know, people who
Speaker 1: do risk control and things like that. The twenty four
Speaker 1: seven trading idea, while it's fantastic and I know that
Speaker 1: does a lot of great things, it also has a
Speaker 1: bad thing, which is, you know, for markets, do you
Speaker 1: have the right systems in place to risk control for
Speaker 1: trading outside in normal hours? And you know, how how
Speaker 1: are you handling that from a risk perspective? And so
Speaker 1: AI is really good for that, because you know, you
Speaker 1: can set parameters for things to trade or not trade,
Speaker 1: or block trades, whatever the case may be, so that
Speaker 1: if you're sleeping or something, you know, you can at
Speaker 1: least avoid a disaster. Yeah. Absolutely.
Speaker 2: I would love to get your thoughts on Senator Lumis's
Speaker 2: crypto tax bill and the implications that would have on
Speaker 2: the digital asset taxation and reporting and much more, because
Speaker 2: a lot of these things are still being sorted out
Speaker 2: and we're still waiting here in the United States for
Speaker 2: concrete rules and for these things to be passed.
Speaker 3: What is your take on her proposed bill.
Speaker 1: Yeah, well, first of all, it's very welcome, Thank you,
Speaker 1: Senator to Lumis for doing this. You know, this country
Speaker 1: as a whole is behind in regulating digital assets versus
Speaker 1: the world, which is said, but we are where we are.
Speaker 1: But that's in you know, normal regulations like sec CFTC.
Speaker 1: You can see how that's moving along. Sol Liba Shortley's
Speaker 1: getting there. Tax almost nothing, We've had almost nothing in
Speaker 1: the way of tax regulation here. It's certainly tax legislation.
Speaker 1: So there's three things happening right now. One is the
Speaker 1: Loomis legislation. Obviously, that's in the Senate. Great there's also
Speaker 1: a representative Max Miller and Stephen Horsford in the Congress.
Speaker 1: That's not really legislation. They put out a thought piece
Speaker 1: on that. It's that they're taking comments on and then
Speaker 1: they'll put it into a bill. And there's some really
Speaker 1: great stuff in there. And then, of course we just
Speaker 1: had over the past summer, the President's Digital Asset Working
Speaker 1: Group put out their priorities and you can see each
Speaker 1: one of those priorities is being acted upon right now,
Speaker 1: and so all of those have tax components. So yeah,
Speaker 1: the ones that are in there, I mean, believe it
Speaker 1: or not, the bulk of these pieces of legislation are
Speaker 1: like the brick and mortar stuff, like the plain obvious stuff.
Speaker 1: I don't have rules right. For example, I think everybody
Speaker 1: who trades crypto is very well aware that you know,
Speaker 1: the washstyle rule does not apply to crypto, not because
Speaker 1: it's a great loophole, it's just when they wrote the rule,
Speaker 1: crypto didn't exist, so it's not in there. But and
Speaker 1: so there's a ton of pieces in the tax code
Speaker 1: like that, where it says when you're reading the text
Speaker 1: of the statute, it says when you do this with
Speaker 1: stock or securities, and it's repeated all over the code.
Speaker 1: Every time that statute says stocker securities, you can't use
Speaker 1: that piece. And sometimes that's hurtful, sometimes it's helpful, like
Speaker 1: in the Lost help So there's a little bit of
Speaker 1: fixing that. And so most of these pieces of legislation
Speaker 1: are just going through and they're taking those little underlying
Speaker 1: things like for example, when asset managers trade assets from
Speaker 1: within the United States for people who live outside the
Speaker 1: United States, we never say, oh, you know, you foreigner,
Speaker 1: you're all of a sudden the US taxpayer because you
Speaker 1: had a US asset manager managing your assets. We never
Speaker 1: do that. And the reason we don't is because in
Speaker 1: the tax code there's a safe harbor that says, well,
Speaker 1: if you're trading stocker securities, that doesn't bring you into
Speaker 1: the US. Well, it doesn't say that for crypto. So
Speaker 1: it's a big problem. Now we've worked around it in
Speaker 1: the interim, but this tax legislation would say, you know,
Speaker 1: you would just fix that, we'd add that, Yeah, crypto
Speaker 1: at too, you can't do that. Also, you know, we
Speaker 1: all lend crypto. If you trade CRYP, you lend crypto,
Speaker 1: and that there's a there's a rule that says that
Speaker 1: lending stocker securities out doesn't cause a taxable disposition. Again,
Speaker 1: doesn't apply to us, so we've been working around in
Speaker 1: the interim. But this rule, these rules will fix that.
Speaker 1: So a lot of good stuff there just brick and
Speaker 1: mortar stuff, but there's also some very specific stuff for crypto,
Speaker 1: which is great. Which is each of these pieces of
Speaker 1: advice or legislation, as the case may be, they call
Speaker 1: for deminimous exemptions, which is great because people always said
Speaker 1: since the beginning of crypto, well, if I go out
Speaker 1: and I buy a cup of coffee with bitcoin, you
Speaker 1: shouldn't tax me on the bitcoin. Now, I don't know
Speaker 1: if anybody is actually using bitcoin to buy coffee anymore.
Speaker 1: I would use a stable coin. But be that as
Speaker 1: it may, you do find those that in the legislation
Speaker 1: that there is some deminimus exemption. People have also been
Speaker 1: calling for no taxable gain or loss. If you have
Speaker 1: to dispose of a digital asset to pay gas fees.
Speaker 1: They think about it, You know, why are you doing
Speaker 1: that to me? I had to pay gaspies I was
Speaker 1: I wasn't trying to profit or you know, from my
Speaker 1: crypto is just paying gaspees like I had to. So
Speaker 1: those are in the legislation. That also one of the
Speaker 1: things that the US did put out some rules a
Speaker 1: year or so ago on crypto. It's not the ones
Speaker 1: that most people think about, though, it's the ten ninety
Speaker 1: nine reporting. So people just now probably just got their
Speaker 1: ten ninety nine DA from their exchanges they trade on
Speaker 1: centralized exchanges. One of the things that maybe got overlooked
Speaker 1: in that rule was the ten ninety nine DA reporting
Speaker 1: actually does apply to stable coins, which is weird. Why
Speaker 1: do I have to report on stable coins because if
Speaker 1: I sold it, it was I bought it at a dollar,
Speaker 1: I sold it at a dollar. Why do you make
Speaker 1: me do this? But the truth is is minor mighty
Speaker 1: little penny penny, you know, differences here and there, and
Speaker 1: it gets picked up and nasby reported should not be
Speaker 1: and so that's also in this legislation. Let's fix that.
Speaker 1: Let's not have this reporting for stable plans and that
Speaker 1: kind of thing. So there's some good things in there,
Speaker 1: and there's also like maybe other things that you don't
Speaker 1: think about but are real, which is people sometimes donate
Speaker 1: their crypto to charity. That's right, right, should be easy.
Speaker 1: But believe it or not, you have to go out
Speaker 1: and get a qualified appraisal if it's over five thousand dollars.
Speaker 1: Why would you need to do that when I can
Speaker 1: just look on you know, some exchange and get the price.
Speaker 1: I have no idea. That is the rule. So this
Speaker 1: legislation would change that as well. So there's a myriad
Speaker 1: of little things in there, but all of it is
Speaker 1: really good. Each one of those things. The President's Working Group,
Speaker 1: the Miller Horsford Bill, and Lewis, but they're all a
Speaker 1: little different, but they're trying to get out a lot
Speaker 1: of the same things. So hopefully there will be you know,
Speaker 1: some they'll bring it all together and we'll get a
Speaker 1: good bill out of it. One of the really nice
Speaker 1: things about that Miller Horseford Bill is the they have
Speaker 1: a provision in there is you're mining and staking rewards
Speaker 1: that you have a choice. The base rule is they're
Speaker 1: not taxable upon receipt, which is the current IRS rule.
Speaker 1: They're rather they're not they're taxable only when you sell them.
Speaker 1: That's great. That's in the Loomis Bill too, by the way,
Speaker 1: But they add another provision which is an election. If
Speaker 1: you want to elect to be taxable upon receipt, you can.
Speaker 1: And you might say, well, why do I want to
Speaker 1: do that? The reason is, if I get a staking
Speaker 1: reward today and it's worth ten dollars, but I believe
Speaker 1: in a few months from now it's going to be
Speaker 1: one hundred dollars, i'd rather get taxed on the ten
Speaker 1: now at ordinary income rates, and then later when I
Speaker 1: want to sell, I'll get tax capital gain rates. So
Speaker 1: that's great that that electivity is fantastic, and kudos to
Speaker 1: them for thinking of that and putting that in there.
Speaker 2: That's such a great point. I didn't think about that
Speaker 2: because I do steak myself, and if I can get
Speaker 2: tax at the lower amount, especially like in a bear
Speaker 2: market like we are right now, that would be ideal
Speaker 2: versus in a bowl. But dumb question on my part.
Speaker 2: So when I sell, is it a capital gains tax
Speaker 2: even though I didn't necessarily invest anything, it's just a reward.
Speaker 1: Yeah, that is a great question, Tony. And yeah, the
Speaker 1: way tax policy works is anytime you get something without
Speaker 1: an exchange, it's got to be ordinary income. That's a
Speaker 1: very generalized statement, but generally true. And so Yeah, so
Speaker 1: in staking rewards, if you didn't elect to pick it
Speaker 1: up at income upon receipt, if this rule goes into
Speaker 1: place later when you sell it would be ordinary income.
Speaker 1: So again another another incentive to maybe elect to get
Speaker 1: taxed earlier on the ordinary income to get capital gained later.
Speaker 1: But either way, I mean, hey, great to have the electivity,
Speaker 1: you know, And there's a lot of people in the
Speaker 1: market for things that their motives are different. I mean,
Speaker 1: if you're a publicly traded mining company, you have this
Speaker 1: issue right now where you know you're getting taxed on
Speaker 1: all these the mining rewards as they come in, you're
Speaker 1: going to hold them for a long time. And they're
Speaker 1: publicly traded, so they have these, you know, publicly available
Speaker 1: financial statements and it's making you a little wonky between
Speaker 1: the book and the tax. So for them, they would
Speaker 1: be that person or that entity that would say I'm
Speaker 1: not going to be taxed till I sell it. But
Speaker 1: for you and I, we might make a different choice.
Speaker 2: Yeah, and it's great, Like you said, it's great to
Speaker 2: have that option, and this bill is much welcome and
Speaker 2: hopefully they can get that through this year. I know
Speaker 2: right now we're still waiting on the Clarity Act to
Speaker 2: get sorted out in the Senate. Did you have any
Speaker 2: thoughts on the CLARITYAC You know the impact that would
Speaker 2: have on the industry and adoption, and now you know your.
Speaker 3: Best guest could have passed this year.
Speaker 1: So I think it's tough tough to get it to
Speaker 1: pass this year. And the obviously reason for that is
Speaker 1: it's we have midterm elections coming up in November, and
Speaker 1: so you're really the only chance for it to pass
Speaker 1: this year is for them to do something between now
Speaker 1: and in May, otherwise forget it into the elections. But
Speaker 1: there is another possibility in the lame duck session after
Speaker 1: the elections. Sometimes things passed in that little period, but
Speaker 1: who knows. But thankfully, though you might have noticed in
Speaker 1: the past couple of weeks the Paul Atkins and Michael
Speaker 1: Sillig so sec CFTC Chairman's came out they're working together.
Speaker 1: They have a memory animate understanding between the two institutions.
Speaker 1: They put out some rules just this past week at
Speaker 1: the DC Blockchain Summit. They came out and said, hey,
Speaker 1: here's how it's going to work, and basically it's Clarity
Speaker 1: is the Clarity Act. They're jumping the gun and they're
Speaker 1: just doing it regulatorily, which is nice, but obviously still
Speaker 1: want legislation so that the next chairman of the SEC
Speaker 1: doesn't come in and just rewrite it. But they're they're
Speaker 1: already going ahead full speed with this and so and
Speaker 1: it is clarity because when you read down to clarity,
Speaker 1: and what it tries to do is say this is
Speaker 1: a commodity, this is a charity. Well that's what they
Speaker 1: just came out with saying that the SEC is only
Speaker 1: going to do uh, token ised securities and investment contracts
Speaker 1: that is, anything other than that is going to the CFTC.
Speaker 1: And then the next part of clarity is, hey, how
Speaker 1: do how do we do registrations? Uh if we are
Speaker 1: a security or we are an investment contract, but then
Speaker 1: we want to evolve into a decentralized platform and have
Speaker 1: a commodity. Well they have that right, they have their
Speaker 1: they have exemptions from registration or they have light registrations
Speaker 1: for funding. And then they have a provision in their
Speaker 1: safe Harbor that they're putting together here that the agencies
Speaker 1: that once you are decentralized, you can you know, tell
Speaker 1: the SEC and you will just drop out of SEC
Speaker 1: regulation and you'll go over to the CFTC. So all good.
Speaker 1: I think that's all passing into to your question, what
Speaker 1: is this going to do for the market. Uh? Really
Speaker 1: that is needed to allow capital to really start to
Speaker 1: flow into this space and allow some of the more
Speaker 1: regulated counterparties to jump in and play a part in that,
Speaker 1: because you know, it's one thing for VC funds to
Speaker 1: do it, you know they're lightly regulated. It's another thing
Speaker 1: for a large fedial deposit insurance type of institution to
Speaker 1: do it.
Speaker 3: Yeah, great point, and fingers crossed they can get that
Speaker 3: done this year.
Speaker 1: That would be amazing.
Speaker 2: But I know, you know the sausage making process in
Speaker 2: DC it's not easy sometimes, but we made a lot
Speaker 2: of progress. But to your point, you know, it was
Speaker 2: an excellent point that the meat and potatoes of what
Speaker 2: would be in the Clarity Act, the SEC and the
Speaker 2: CFTC are doing, which is great. They're putting out that
Speaker 2: guidance and rulemaking and we just need the rubber stamp
Speaker 2: of approval from a macro perspective with the Clarity Act
Speaker 2: in place, but the regulatory agencies, if they're giving the
Speaker 2: green light, I think that's that's.
Speaker 1: Okay, and By the way, this is not an accident, right,
Speaker 1: I think you know, the White House and the agencies
Speaker 1: recognized that, hey, you know, Clarity just might not make
Speaker 1: it this year, but let's not hold it up. Let's
Speaker 1: keep it going. And so the business is the rate
Speaker 1: related entities. That's all they need, right to operate. All
Speaker 1: they need is to see if they're regulators, the cft
Speaker 1: SEC and the OCC in some cases to say you
Speaker 1: can do this. And by the way, kudos to the OCC.
Speaker 1: They came out early. They're like, go ahead, you guys
Speaker 1: can all do it. And so now that the SEC
Speaker 1: and the CFTC are going to bless this in an
Speaker 1: official way, everybody can start doing business. And if the
Speaker 1: Clarity Act has to come next year, that's okay. It's okay.
Speaker 1: At least we can we can keep going. Absolutely.
Speaker 2: I did want to ask you about tokenized assets and
Speaker 2: how how that is changing the way you're approaching as
Speaker 2: as a company reporting on these things. Because you have
Speaker 2: the traditional setup, right which currently exists of stocks and equities,
Speaker 2: even gold, but those assets are now being tokenized. Does
Speaker 2: it does a tokenized aspect make it more complicated or
Speaker 2: easier in different ways as far as reporting regulation and
Speaker 2: much more so.
Speaker 1: At the base case doesn't change anything, right, So if
Speaker 1: my tokeniz is a sheriff's stock, still a shriff' stock
Speaker 1: and all the same roles apply. So that's one. But
Speaker 1: when you dig down a little bit deeper, what ends
Speaker 1: up happening when you tokenize it? Not all the time,
Speaker 1: but sometimes it allows the market participants to do something
Speaker 1: different with it. So now I tokenize the stock, I'm
Speaker 1: still treating it as a shaff stock. I'm still going
Speaker 1: to report on it just like it's a share of stock.
Speaker 1: But now someone in the market is going to take
Speaker 1: that and they're going to put it into a DeFi
Speaker 1: platform or something. Well, now what do I do with it?
Speaker 1: It's still a share of stock? But what was that?
Speaker 1: And for us on the tax side and by the way,
Speaker 1: on the audit side too, for a book purposes. So
Speaker 1: when we transfer an asset into a DeFi protocol, did
Speaker 1: we dispose of it? Like do you de recognize that
Speaker 1: asset from your balance sheet and then recognize a new
Speaker 1: receipt token or no, do I still own it? And
Speaker 1: then from a tax perspective, same thing, did I dispose
Speaker 1: of it? Do I recognize gain or loss or did
Speaker 1: I just lend it out? Did I do I have
Speaker 1: the right to get it back? You know what is that?
Speaker 1: And then if does rewards accumulating inside the DeFi protocol,
Speaker 1: which is usually the case, do I pick those up
Speaker 1: real time right now? Does it go into the price
Speaker 1: of the token? Do I recognize it later? So and
Speaker 1: these are all these are hard. Those are really hard questions.
Speaker 1: And by the way, all of these pieces of legislation
Speaker 1: out there in the world, the one thing that they
Speaker 1: have in common, they basically kick the can down the
Speaker 1: road on DeFi principally because we've got to get rules
Speaker 1: out as fast as we can, and DeFi is really hard.
Speaker 1: So we're going to come back to that. It's in
Speaker 1: every piece of legislation, not just in the United States,
Speaker 1: all over the world. That's the issue.
Speaker 3: That's Yeah, to your point, that is a very tough one.
Speaker 3: And I see a lot of the regulators still struggling,
Speaker 3: not because they're anti DeFi, but just the educational aspect.
Speaker 3: And in addition, how do we make this work. It's
Speaker 3: a complex topic because.
Speaker 2: Maybe we're not there yet to go, you know, even
Speaker 2: for percent of the way with DEFIVE let alone, one
Speaker 2: hundred percent. So it's it's tough, especially transitioning a lot
Speaker 2: of the incumbents and you know, the current system over
Speaker 2: to that.
Speaker 1: Yeah, and you know what I was saying earlier, you know,
Speaker 1: when I started off my career and we were doing
Speaker 1: this in derivatives when we didn't have rules. It's kind
Speaker 1: of the same. Like I remember back in those days,
Speaker 1: everybody digging through the actual contract for little bits of
Speaker 1: language to try to decipher, for example, was this a
Speaker 1: disposal of the underlying asset? What was I lending it?
Speaker 1: Is this an option? Is a swap? Is it a
Speaker 1: futures contract? And you know I see that here too.
Speaker 1: People are making that, you know, for lack of any
Speaker 1: other tool. They're trying to get into the technology and
Speaker 1: dig down there and say, well, in this technology, the
Speaker 1: way this protocol works, the way it's written, here's what's
Speaker 1: going to happen. I think we need to get to
Speaker 1: a place where we was in Ah, I'm not reading
Speaker 1: code in order to come up with the right tax rule.
Speaker 1: Let's have some bright line rules like if it did this,
Speaker 1: it's treated like that? Is that a treat like that?
Speaker 1: Because trying to get behind you know, a smart contract
Speaker 1: is not the place for a lawyer. So we'll get there.
Speaker 1: We'll get there. But yes, that is that's going to
Speaker 1: be secondary. And in the meantime, there are people like
Speaker 1: my tax professionals I have a KPMG who have just
Speaker 1: spent a ton of time with this and they see
Speaker 1: what market participants are doing. We take a look at
Speaker 1: what the tax risk is and we all come to
Speaker 1: an understanding of listen, we don't have rules, but here's
Speaker 1: how the industry is going to treat this for now
Speaker 1: until we do. Because what I say was when you
Speaker 1: don't have rules, especially a tax if we don't have rules,
Speaker 1: well let's all get together and go with the herd.
Speaker 1: Don't be an outlier, right, So if we're wrong on it,
Speaker 1: let's all be wrong together. We'll fix it going forward.
Speaker 2: So on that note, and I don't know if this
Speaker 2: makes sense. Are you is KPMG in any type of
Speaker 2: group or consortium with maybe even your competitors or other
Speaker 2: industry players to try to figure these things out.
Speaker 1: Yeah, So all of the Big four do take part
Speaker 1: in industry groups. So we write help them write papers
Speaker 1: and put their position papers together so when they go
Speaker 1: down to Congress, you know they can or or it's
Speaker 1: in front of a state regulator, whatever the case may be,
Speaker 1: that they are able to you know, advance their position.
Speaker 1: And so we all we all do that. Obviously, we
Speaker 1: don't lobby ourselves, we don't do that, but we certainly
Speaker 1: help them to do it, of course, and we are
Speaker 1: routinely asked by you know, like the Senate Finance Committee
Speaker 1: and the tax writing committees that you know, come down
Speaker 1: and speak to them more educate, educational and by the way,
Speaker 1: great great for them that they invite us down to
Speaker 1: do that. I mean, they want to learn, they want
Speaker 1: to know, you know, so they can whatever rules they
Speaker 1: do end up writing, they can at least be thoughtful
Speaker 1: about it.
Speaker 3: And Tony, what's on your roadmap for this year as
Speaker 3: it relates to digital assets?
Speaker 1: So you know, there are still believe it or not,
Speaker 1: people say, well, you know the Genius Act that's done
Speaker 1: the past, Well it did, but they implementing regulations are
Speaker 1: and hear that, and so we're still working through that.
Speaker 1: So the implementing regulations have to be out by July
Speaker 1: eighteenth this year. So obviously you know we're working through
Speaker 1: that process. And that's a big deal because you know, yes,
Speaker 1: we want stable coins, and we want regulated stable coins
Speaker 1: on the one hand. But the other thing that it
Speaker 1: does do is once these hopefully it will do when
Speaker 1: these regulations come out in July, is that it is
Speaker 1: going to treat payment stable coins, which is a defined
Speaker 1: term on the genius sect. It will treat them as cash.
Speaker 1: And that does a lot of things for us on
Speaker 1: the accounting side, and it does a lot of things
Speaker 1: for our regulated banking clients, you know, for on their
Speaker 1: balance sheet and on their risk weighted assets, if they
Speaker 1: can list that as cash or cash like item, it
Speaker 1: does a lot of things for them. And so it
Speaker 1: will increase the use of stable coins greatly after that.
Speaker 1: So that's certainly one thing that's on the horizon here.
Speaker 1: The other thing that we're trying to deal with, and
Speaker 1: it's still going, I believe it or not, is the
Speaker 1: ten ninety ninety eight reporting in the US. We just
Speaker 1: had our first ones. If you didn't get your ten
Speaker 1: ninety nine dya, that's because it was a screw up.
Speaker 1: If you've got your ten ninety nine DA and it
Speaker 1: was wrong, that's a not a mistake, that's a feature.
Speaker 1: I mean, it's not working the way it's supposed to
Speaker 1: work right now, and so we've got a lot of
Speaker 1: work this year to do to work on the ten
Speaker 1: ninety nine reporting because next year it will have tax
Speaker 1: bait where it's supposed to have tax basis on it.
Speaker 1: This year was just gross pro season. It sounds very simple,
Speaker 1: but there's a lot of work behind the scenes to
Speaker 1: make that happen correctly. And then of course, the big
Speaker 1: big thing that we're also working on is so KARF
Speaker 1: is live. KARF is the Crypto assid Reporting Framework in Europe.
Speaker 1: It is live in many countries, not in the United
Speaker 1: States yet, but the United States will go live with
Speaker 1: that in twenty twenty eight and that's a big lift
Speaker 1: for us too to get all those regulations and get
Speaker 1: the process us in order so people can be able
Speaker 1: to report to that. So that's another thing that we're
Speaker 1: working on in that space. But yeah, I mean, it's
Speaker 1: a it's a never ending cycle of things here that
Speaker 1: we're that we're constantly working on. And then like I said,
Speaker 1: new things just keep coming to the market, and uh,
Speaker 1: you know, we have all these digital asset treasury companies
Speaker 1: now and they have their own unique issues that we're
Speaker 1: trying to deal with. Because they're publicly reporting entities. Uh yeah.
Speaker 1: And then uh, you know, inside the asset management space,
Speaker 1: good and bad. But I do find you know, what
Speaker 1: we have in the United States for asset management, as
Speaker 1: people are going to access digital assets, we have exchange
Speaker 1: traded products ETPs. People call them ETFs, but they're not
Speaker 1: really ETFs, right, So we're trying to get that rule
Speaker 1: adjusted so that they can be ETFs. It will make
Speaker 1: life easier for everybody. So that's something that we're working
Speaker 1: on now too. And then one of the things they
Speaker 1: think within asset management that is fantastic are these, you know,
Speaker 1: the notion of vaults that people can have, you know,
Speaker 1: you know, put put stable coins into vaults that may
Speaker 1: be curated, maybe autonomous, and just let them trade. And
Speaker 1: you know, but then of course being able to report
Speaker 1: on that and get your castes ready from that, it's
Speaker 1: like just a new frontier for us, another thing to do.
Speaker 3: You got lots on your plate, but it's all great
Speaker 3: stuff and all important things for the progression and the
Speaker 3: you know, the infrastructure being built.
Speaker 1: Out absolutely yeah no, and it's exciting and it keeps
Speaker 1: you know, the people that work for us, you know,
Speaker 1: entertained and allows them to really, you know, express some
Speaker 1: creativity in this space. So it's fantastic and hopefully we
Speaker 1: are helping the economy move forward and helping you know, productivity,
Speaker 1: and hopefully we'll get to a place where you know,
Speaker 1: more and more people can utilize the financial infrastructure that
Speaker 1: we have in the United States. One of the great
Speaker 1: things I find about digital assets is the democratization of finance.
Speaker 1: You know, there's a lot of people around the world,
Speaker 1: you know, you take it for granted that you have
Speaker 1: a bank account, you have a you know, you have
Speaker 1: a debit card, you can go do things a lot
Speaker 1: of people do not, and so for them to be
Speaker 1: able to access that from a mobile phone is just
Speaker 1: phenomenal for them. Oh absolutely, all.
Speaker 3: Right, Tony, I got some wrap up questions here for you.
Speaker 3: The rapid Fire. First favorite food, deld Palm, I'm Italian though,
Speaker 3: Favorite musician or band, Oh Rolling Stones?
Speaker 1: That wants an easy ones? Favorite movie, Oh deez, Iconic?
Speaker 1: How about well I show my age but breakfast club?
Speaker 1: Favorite book? You know, Ever since I went through law school,
Speaker 1: I used to read, but ever since I went to
Speaker 1: law school, all I do is read for work. So
Speaker 1: my favorite book is the tax code. Now, that's what
Speaker 1: it is.
Speaker 3: When you're not working, what are you doing for fun.
Speaker 1: Health and fitness. I am a fitness fanatic, so if
Speaker 1: I have free time, that's what I'm doing.
Speaker 2: Tony, absolute pleasure. I love what KPMG's doing and certainly
Speaker 2: one of the key pillars right in providing the reporting,
Speaker 2: the verification and all these things that are important for
Speaker 2: this asset class to grow. And I'm looking forward to
Speaker 2: the future updates. So thank you so much for joining me.
Speaker 1: Thanks for having me, Johnie appreciate it.
Speaker 3: Thank you so much for tuning in. Please hit the
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