The Big 4 in the hot seat, Part I: Keeping up with crypto

Quick Take

The Block spoke to the blockchain heads at PwC, Deloitte, KPMG, and EY about their strategies for the space and preparing their clients
We spoke about their recruitment difficulties and how to handle both clients’ expectations and their misperceptions
Each firm has a slightly different focus; EY and KPMG are taking on crypto auditing, PwC is keen on blockchain credentialization services, while Deloitte is driving blockchain uses in finance

The Big 4 haven’t been timid when it comes to taking on crypto. They’ve been every broadcasters’ dream in their regular talk show appearances; speaking in broad terms about the “potential” the technology brings.

From Deloitte to KPMG, EY to PwC, the consulting and auditing giants all agree that major enterprises – including many of their clients - have been clamouring to understand blockchain and crypto. But what have the Big 4 been doing behind the scenes? How well do they really know the space, and what do they tell clients to expect?

Here are the major takeaways from our discussions around how the Big 4 are investing to keep pace with the industry.

Difficulties meeting demand

While it's clear all four firms have been on blockchain hiring sprees, on the ground, managers have been in a battle of recruitment for the top minds.

“It’s a skill set that needs a certain amount of time to be invested in," says KPMG Managing Director Kiran Nagaraj. "It’s a new space, but it’s a combination of a lot of disciplines. [We want] crypto experts, not people just tracking the price action."

To meet client demand in the space, KPMG says it's been pulling people from other areas in the company, for instance, those in cybersecurity, as well as ramping up hiring "quite significantly."

PwC Partner Steve Davies says he agrees on the recruitment challenges.

"It's difficult to hire in this space because there's a premium...You've got to be a bit ambidextrous," he says, noting the importance of candidates being able to grasp the deep technical complexities as well as coherently translate to clients.

"With blockchain, you have to be able to do the Rubik's Cube, all the sides, and you have to be able to explain it to somebody who doesn't know that." A personable coder, if you will.

Elsewhere, EY notes that it hasn't just reshuffled, but forced cross-sector integration.

"Technology businesses require technology scaling. It's not enough that they have process people, so, we created this group where we've married the process people who know industries and processes, with technology people. We've made a huge effort to build these technologies we built," Paul Brody, EY's global blockchain innovation lead told The Block.

"We are hiring R&D people, so we have our whole zero knowledge-proof research. We're hiring mathematicians, nuclear physicists, cryptographers. That's a radical departure for EY. We've never had to make EY a line item in the budget for research and development before."

To date, Brody says they have between 500 and 800 employees worldwide working on blockchain-related contacts - still a relatively small number compared to their 60,000-plus global workforce. Meanwhile, PwC has around "450-odd people around the network."

Facing the clients

All of the Big 4 firms say their clients span the globe -- from Singapore to the U.S. EY specified it had mainly non-crypto companies, while Deloitte said the "vast majority" were new-entry crypto and token companies they only engaged with after "an extremely rigorous client acceptance process."

For Deloitte's 400 blockchain clients, urging caution is key, according to their division chief, Linda Pawczuk.

"We're not burning [clients'] money throwing all kinds of crazy ideas at the wall. We're not trying to drive them to a fictitious belief that they can generate brand new revenue models for things", she says. "It's not a shiny object, and for those that got hooked up on the shiny object, that's why things aren't going so well, that's why there's fatigue."

Deloitte also never, ever, advises on where the prices of coins are heading.

PwC says part of the firm's job is keeping the hype in check, and applying a clear methodology to where industry use-cases exist.

"I think there is a lot to do around explaining the story better around what blockchain can do and the power of it," PwC's Davies says. "When we do get involved looking at different use cases, we apply a six-criteria test to make sure that there actually is a better way of doing that for additional technology...It's like a technology that is looking for a problem."

It's also, paradoxically, about calming loosely based suspicions when it comes to crypto.

"There is still a lot of commercial sensitivity around what people are doing. I suppose what goes into the news is what happens in cryptocurrencies, but what doesn't necessarily get into the news are all the things going on behind the scenes to try and get these things ready to get them into the market," Davies added. "There is no negativity [at PwC] associated with crypto"

It's a sentiment echoed by EY blockchain chief, Brody, who's unwavering in his belief that the tech is "the biggest advance in transaction software in 50 years," and says he's eager to see as many companies as possible start using public blockchains. At present, he says the company has more than 125 insurance clients, 75-80 industrial and process blockchain activities, and "half a dozen networks live" helping test the technology's utility.

"If we can make transactions on a public blockchain as secure and private as they are on a private blockchain, then companies can start moving their business properties back on to public networks, and they can start tapping into the public capital market," he says. "Our number one priority is scalable, private, regulatory-compliant transactions on a public blockchain."

JPMorgan clearly feels similarly, having designed its JPM Coin for Quorum, an enterprise iteration of the Ethereum blockchain.

Company focus and differentiation

One thing the companies all share is a steady disassociation from their past ICO work. Beyond that, it's fair to say there are subtle differences around their expertise at the moment.

EY, for instance, is taking a strong interest in crypto auditing; investing in tech that will allow the firm to offer a specialised service. The Big 4 all currently audit large crypto companies - from exchanges to token projects - but to varying degrees of satisfaction, according to sources who rely on their services. Institutions will expect nothing short of a premium standard, and may well have multi-token balance sheets.

"My goal is: we're going to be your first choice for audits...We want to add a tax calculating ability," EY's Brody says, nodding to the "challenges" in this field.

"Eventually [EY] foresees a world where if institutional investors have dozens or hundreds of different blockchain tokens in their portfolio, we are able to manage all of those. That's where we are. We're systematically working towards a model where we can that."

Brody added, "There are still a lot of questions that haven't been fully answered," hinting at the regulatory uncertainty. Deloitte's Pawczuk agreed, noting, “there are no rules" in crypto auditing at present.

KPMG's Nagaraj, however, says "it’s only a matter of time before those standards are put in place." Until then, he says, it's one balance sheet at a time, taking into consideration the geography in which a company is registered and the guidance available there.

"Some countries we are auditing because we have the permissions, and we have the expertise. Others we're well on the way," he says.

Beyond that, PwC is perhaps most bullish on the role of blockchain in the credentialization of official documents or supply chain origins.

"We're doing a lot of work in this space ourselves," pointing to their work with the Indian government where PwC was involved in generating the nation's first birth certificate on a blockchain.

"I'm fairly optimistic that over the course of the next 10 months or the rest of the year, we're going to see some examples of these things actually coming out into the real world, so people can play to them"

Finally, Deloitte is focusing on advising crypto companies on tax.

"We continue to work to make sure on the crypto side they are absolutely aligned with the transparency and the compliance related matters for regulators."

They are also busy advising the energy industry on the "operational efficiency" boosts blockchain could offer.

Part II of our conversations next week will look to the future; asking what the firms see for institutional uptake, untapped opportunities, bear market predictions, and what gets them excited about blockchain.