Canadian securities regulators are taking a pragmatic approach to trading crypto assets. Since at least 2019, staff from Canada’s various securities regulators (collectively CSA) have been working with operators of crypto trading platforms (CTPs) to protect public investors and innovate for cryptocurrency participants. I’ve been trying to figure out how to balance my needs with my desires. capital market.
Rather than creating a new regulatory regime to handle crypto assets, the CSA has applied long-standing securities law principles to its analysis. While the CSA recognizes that underlying cryptoassets such as Bitcoin may not themselves be securities or derivatives, the way cryptoassets are traded on the blockchain does not give rise to contractual rights. The company’s position is to create a market between buyers and sellers of holdings. It is not a direct right, but a right to the underlying asset (crypto contract). Crypto contracts are either securities (investment contracts) and/or derivatives.
Certain market, trade reporting, and prospectus relief was temporarily granted to CTPs wishing to cooperate with the CSA, including in pre-registration undertakings (PRUs) and exemption orders imposing registrant-type obligations. The following conditions will now apply. Nature of Cryptoassets. During this interim process, many of these CTPs sought registration as dealers and membership with the Canadian Investment Regulatory Organization (CIRO), and now operate under a number of registered dealer categories. Although they continue to enjoy certain exemptions, they are subject to cryptocurrency-specific disclosure, “know-your-customer” and custody obligations based on registration and exemption relief decisions.
Regulatory CTPs are typically limited to trading in crypto contracts based on crypto assets that are not themselves securities or derivatives. A “stablecoin” or “value referenced crypto asset” (VRCA) is designed to maintain a stable value by referencing the value of an underlying asset (usually a fiat currency, a commodity, or another crypto asset). It is a type of crypto asset.
The CSA is of the view that VRCAs may constitute securities and/or derivatives in certain jurisdictions, which may disqualify them from being subject to crypto contracts. Nevertheless, the CSA recognizes that there may be some value in the use of VRCA and, in limited circumstances, allows a compliant CTP to contract crypto contracts where the underlying crypto asset is VRCA. allowed to trade.
The underlying VRCAs can typically only refer to Canadian dollars or US dollars on a 1:1 basis, and the issuer of these VRCAs must back them with sufficient assets held by an appropriate custodian. yeah. As of December 31, 2023, CTPs authorized to handle VRCAs will cease allowing clients to purchase, deposit, or enter into crypto contracts by reference to VRCAs that do not comply with the above. It was supposed to happen. As of April 30, 2024, CTP is also not fully compliant with certain issuer disclosure, audit and assurance obligations, and certain CTP risk management and disclosure obligations related to VRCA. The contract was to cease trading. This deadline was originally extended to October 31st, but was extended again to December 31st, 2024 by a press release issued on September 26th. It is important to note that compliance obligations are imposed on both VRCA issuers and VRCA issuers. CTP that trades crypto contracts with VRCA as the underlying asset.
This extension, in relation to the VRCA, will ensure that CTPs comply with the terms of registration or that investor protection The purpose is to be able to suggest alternatives that address your concerns. From December 31, CTPs that have offered registered CTPs or PRUs will only be able to offer VRCA products that comply with the terms of the exemption decision or PRU, including obtaining the necessary commitments from the issuer of the covered VRCA. .
We will continue to monitor developments in this area. If you have any questions or would like to discuss this matter, please feel free to contact us.
