Pan-Canadian and provincial watchdogs issue regulatory guidance and deadlines, warn of possible consequences to non-compliance
The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) are telling crypto trading platform operators to make sure they are complying properly with securities rules and requirements.
In a joint notice, the two pan-Canadian watchdogs laid out securities law requirements that apply to crypto asset trading platforms (CTPs) – whether they’re trading crypto assets that are securities or derivatives, or contractual rights or claims to underlying crypto assets such as bitcoin or ether – and how regulators may tailor them for the CTPs’ business model.
“The guidance in our notice details steps platform operators need to take to comply with securities legislation as they prepare to fully integrate into the Canadian regulatory structure,” Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers, said in a statement announcing the notice.
Aside from identifying risks specific to CTPs, the notice outlined interim approaches that may be available to such platforms in order to strike a balance between providing innovation and flexibility on one hand, and ensuring they operate in an appropriately regulated fashion on the other.
“Accordingly, we contemplate that, as an interim measure, a Dealer Platform that trades Crypto Contracts may operate by seeking registration as a restricted dealer, provided it does not offer leverage or margin trading,” the notice said.
Platforms in New Brunswick, Nova Scotia, Ontario, and Quebec are asked to submit applications for investment dealer registration and IIROC membership during the interim period, which is generally expected to be two years. Dealer platforms within Quebec that trade crypto contracts which are derivatives, it added, will be required to seek registration as derivatives dealers.
“The securities regulators in Alberta, British Columbia, Manitoba and Saskatchewan will consider other regulatory approaches during the interim period, as warranted,” the notice said.
The notice also set out requirements and interim approaches for CTPs that operate as marketplace platforms and clearing houses, as well as guidelines for reviewing applications from entities with novel business models that seek membership with IIROC.
“We remind all CTPs that are dealing with Canadians, including foreign-based CTPs, that they are expected to comply with Canadian securities legislation,” Morriset said. “Failure to do so could result in CSA members pursuing enforcement action.”
For its part, the Ontario Securities Commission (OSC) has notified CTPs catering to persons or companies within the province – including platforms that are located outside Ontario – to bring their operations into compliance with Ontario securities law to avoid potential regulatory action.
“Unregistered crypto asset trading platforms expose Ontario investors to significant risks, including potential loss, theft and misuse of their assets,” said OSC Chair and CEO Grant Vingoe. “The recent explosion of unregistered platforms has magnified these risks.”
It said CTPs that offer trading in derivatives or securities must contact OSC staff by April 19 to discuss how to make their operations as a dealer or marketplace compliant, or “steps will be taken to enforce applicable requirements under securities law.”
The OSC also highlighted potential public interest concerns that could arise as CTPs that are required to be registered seek to become reporting issuers through initial public offerings, reverse takeovers, changes of business, or other transactions. Platforms with such plans, they said, must contact OSC staff to address these concerns.
