The firm argues that the decision ignores the purpose of securities law and was based on overly burdensome standards
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Canadian securities regulators appear to be getting more cautious about cryptocurrencies. Even before last week’s launch of a consultation on possible regulations for crypto platforms, the Ontario Securities Commission (OSC) blocked the launch of a bitcoin fund for retail investors by refusing to issue a receipt for the final prospectus of the fund.
“While I appreciate the importance of innovation in publicly offered investment funds, as discussed above, it does not appear to me at this time that the operational risks presented by the Fund are sufficiently mitigated such that the Fund can make a public offering,” Raymond Chan, acting director for Investment Funds & Structured Products at the OSC, said in his February 15 decision.
Now 3iQ Corp, the manager behind the bitcoin fund, is asking the OSC to allow a public hearing and to review its decision. “With all the proper pieces in place, we have created an investment vehicle that we believe complies with Canada’s securities laws and seeks to address the needs of all Canadians, including the 5% of Canadians who have invested in bitcoin,” 3iQ President and CEO Fred Pye said in a statement.
The company noted that it submitted a preliminary prospectus for The Bitcoin Fund in October 2018, after two years of working with OSC Staff to create a secure, regulated, professionally managed investment vehicle for Canadians to access the major cryptocurrency. It also added that the fund is not meant to be a complete investment program for any investor, but an allocation to let them diversify their portfolio with exposure to “an uncorrelated asset class and innovative technology.”
Aside from arguing that the decision disregards the purpose of securities law to promote fair and efficient capital markets, 3iQ said that the fund was subject to operational standards that were more onerous than those required by law.
“[W]orking with our custody partners, we have established industry-leading operational risk management processes to safeguard the Fund’s bitcoin in accordance with our standard of care as investment fund manager and in compliance with applicable securities laws,” said Shaun Cumby, 3iQ’s chief investment officer.
“The Fund’s net asset value pricing will be based on the MVIS CryptoCompare Bitcoin Index maintained by MV Index Solutions GmbH, a leading index administrator in this space,” added Chief Financial Officer John Loeprich.
Citing the recent collapse of QuadrigaCX, 3iQ Chairman Howard Atkinson highlighted the danger of Canadians investing in crypto assets absent of any securities regulation. Contending that the fund has dealt with all relevant regulatory concerns, he called for “a hearing of independent OSC Commissioners to debate the issue of public interest based on factual evidence.
“We have worked long and hard with industry participants and the regulators to get to this stage, and we hope to successfully conclude this process at a hearing,” Atkinson added.
Beyond its spat with the OSC, 3iQ has to face the reality of falling Bitcoin values. The Wall Street Journal recently reported that the cryptocurrency is in the longest slump of its decade-long history; as of Tuesday, it was hovering at just over US$4,000, compared to its peak of around US$19,800 in December 2017.
