CSA sets out expectations for investment funds holding crypto assets
Canada’s securities regulators want investment fund managers to be clear on what is expected of them regarding holdings of cryptocurrency assets.
The Canadian Securities Administrators (CSA) has published guidance to help fund managers understand and comply with securities law requirements for public investment funds holding crypto assets (public crypto asset funds).
In doing so, it is also reminding Canadian investors that investing in crypto assets is higher risk, even when doing so through public investment funds, and that these investments may not be appropriate for retail investors.
The CSA staff notice highlights that the regulatory framework for crypto ETFs or alternative mutual funds holding crypto assets are the same as for other publicly distributed investment funds in Canada, including having a registered investment manager and portfolio manager(s).
Pointing to a review of public crypto asset funds, the guidance says that the CSA has not identified any liquidity issues. Funds have “not experienced any material difficulties in meeting redemption requests since their respective inceptions.”
For ETFs specifically, the analysis found that redemptions could be honoured as part of funds’ normal operating procedures without extraordinary measures such as borrowing, in the event of large redemption requests.
Future policy
CSA staff looked at areas that could result in future policies around public crypto asset funds.
Among the most important considerations, the report says, are the ability to determine a fair value of the crypto asset, liquidity of the crypto asset and the classification of the crypto asset and the implications arising from its classification.
The notice also covers issues relating to yield-generating activities, like staking, by public crypto asset funds and Know-your-client, know-your product and suitability obligations with respect to the funds.
"We encourage stakeholders to review this guidance to better understand our expectations of public crypto asset funds," said Stan Magidson, CSA Chair and Chair and CEO of the Alberta Securities Commission. "It is important for such funds to clearly understand their existing regulatory obligations given recent events in the crypto market."
The guidance is available on CSA members’ websites and is called CSA Staff Notice 81-336 Guidance on Crypto Asset Investment Funds that are Reporting Issuers.
