Increased Crypto Regulation
January 1, 2023
The Canadian Securities Administrators (CSA) have announced that they will strengthen their regulation of crypto trading platforms (CTPs) in Canada in response to recent events in the crypto market. The CSA had previously warned Canadian investors about the risks associated with investing in digital assets. Now, the CSA is introducing new requirements for CTPs operating in Canada.
The CSA announced in August 2022 that CTPs must submit pre-registration undertakings (PRUs) while awaiting the completion of their registration applications. The latest announcement states that unregistered CTPs subject to securities legislation in Canada must either deliver a PRU to their principal regulator or cease operations in Canada. Failure to comply could result in enforcement action.
These PRU requirements apply to all CTPs offering services to Canadians, regardless of their presence in Canada. The terms and conditions of the PRUs are similar to those imposed on registered CTPs.
Additionally, the CSA will impose "expanded" requirements on CTPs, which may also apply to registered CTPs. These requirements include segregating client funds from the platform's business and holding client assets with a regulated custodian. CTPs will also be prohibited from offering margin or leverage to Canadian clients.
Takeaways:
The CSA restates its position that CTPs, whether registered or subject to a PRU, are not allowed to allow Canadian clients to trade or obtain exposure to crypto assets that are considered securities and/or derivatives. The CSA considers stablecoins or stablecoin arrangements to potentially fall under the definition of securities and/or derivatives.
While some details of the "expanded" requirements remain unclear, the impact on the Canadian crypto market could be significant. Registrants should conduct proper due diligence to ensure the CTP they are using in Canada is compliant with the new rules.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer.
If you want the latest updates to news, rules and regulations to your registration requirements and ongoing Canadian Securities compliance please, subscribe to our monthly newsletter or contact us or learn more.