Ontario Securities Commission “Doesn’t Really Know What’s Going On” in Blockchain Fintech, Says Lawyer

The Ontario Securities Commission (OSC) published its 2018-2019 “Statement of Priorities” June 5th, but the document provides zero helpful guidance to Ontario companies trying to engage with cutting-edge blockchain-based financial technologies, says Toronto-based blockchain lawyer Amy ter Haar.

The “OSC…Statement of Priorities for the Financial Year to End March 31, 2019” restates the commission’s ongoing commitment to investor protection, reduction of regulatory burden and the enhancement of staffing diversity.

But according to ter Haar, when it comes to areas like ICOs (Initial Coin Offerings), “tokenized securities” and blockchain for fintech, the agency is painfully vague.

The entire investment community is looking to the OSC and CSA for guidance around blockchain and cryptocurrencies and it is disappointing that this hasn’t been highlighted as a priority,” wrote a frustrated Ter Haar via LinkedIN.

While it is clear from the “Statement of Priorities” that the OSC has many concerns in its purview, the document’s reliance on fuzzy platitudes regarding Fintech suggests sluggishness at commission and the downright neglect of a growth industry supercharging across the globe:

There are two sides to industry health. Investor protection is just one side of it…However we categorize cryptocurrencies and tokenized assets, (they) will inform and shape securities regulation (in) the 21st century and influence the health of the entire industry. I can’t believe it isn’t identified as a strategic priority.”

Ter Haar is very clear about what’s needed. “We need KPIs (Key Performance Indicators) for all new and existing regulations (designed to protect ICO investors). We need a purpose and reporting model.”

Besides the trading of “crypto assets,” which is well underway globally, transnational industrial blockchains are being proposed to help manage complex supply chains and trade finance routes. Some are envisioning “self-sovereign identity” blockchains and systems for health records, with all these systems seeking to trot their innovations stealthily across jurisdictions.

The possibilities and risks are many, and regulators must stride in and get their hands dirty for the good of the citizenry.

“Blockchains, as cross-border networks, are not yet regulated by international or national laws. As long as data is managed on a global decentralized network, the protection and security concerns are numerous — especially in places with more autocratic governments, less corporate regulation, and populations already in peril – and this, in turn can impact Canadians,” says Ter Haar.

The entire investment community is looking to the OSC and CSA for guidance around #blockchain and cryptocurrencies and it is disappointing that this hasn’t been highlighted as a priorityClick To Tweet

It is a of time exponential change that calls for extraordinary leadership, and without precise, informed and visionary action, the OSC could even falter on its basic commitment to investor protection:

“With the ongoing blurring lines between the real and digital world, there have been increasing concerns of data ownership and access to services. With all of these innovations, there needs to be adequate protections in place to protect investors.”

For Ter Haar, the OSC’s report on its own priorities is quite damning:

“I’m generally supportive of the overall direction of the OSC goals and proposed priorities…(However) provincial, state-level and international policy networks need to adapt and allow for innovations while providing adequate legislation that provides a base-level guidance on what can and can’t be accomplished with blockchain. I wish the OSC would lead the way but without naming this as a strategic priority, it just simply won’t happen and I wish it would. I can only conclude that they don’t really know what’s going on – which is really quite scary because if it isn’t their business and mandate to know, I don’t know whose it is.”

I wish the OSC would lead the way but without naming this as a strategic priority, it just simply won’t happen and I wish it would. I can only conclude that they don’t really know what’s going on Click To Tweet

Editor’s Note: The OSC is not alone in its struggle to regulate the era of digital assets. The USA, for one, has only slowly outlined a regulatory approach to cryptocurrencies and the issuance of securities on blockchain. Today, in the US, it is generally accepted that all digital assets are regulated by existing securities law, but questions remain as to whether current rules need to be updated to better accommodate this type of Fintech innovation.

Some other countries have selected a path of creating a jurisdiction of preference for ICOs (or perhaps security tokens). Switzerland is regaining some of its financial luster as the Swiss Financial Market Supervisory Authority (FINMA) has partnered with the blockchain industry to encourage change. This past week, SIX Group – the parent company of the Swiss Stock Exchange – announced the launch of a regulated digital assets exchange. France has revealed its intent to embrace digital assets as well. Bespoke regulation is in the works and should become law by early 2019. Of course, Malta has recently passed legislation designed to boost blockchain innovation on the EU island nation.

What is clear is that digital assets are here to stay and regulatory leadership is missing in many jurisdictions – not just Canada. It is always easier for policymakers to lean too hard on the foundation of investor protection to the detriment of innovation and competition. For Canadians, perhaps there is a need for federal action if regulators are too reticent to work with blockchain entrepreneurs. One way or another, it is going to happen with Canada being either a driver or a passenger in the emerging security token ecosystem.

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