Canada: CSA and IIROC Outline Securities Law Requirements and Application to Crypto Trading Platforms

The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have jointly published a notice outlining securities law requirements that apply to crypto-asset trading platforms (or CTPs) and how they may be tailored by regulators, according to a public statement.

The notice seeks to provide guidance on securities law requirements applicable to platforms whether trading “crypto assets that are securities or derivatives or contractual rights or claims to underlying crypto-assets such as Bitcoin or Ether.”

The notice also outlines interim approaches that may be available to digital asset exchanges. The CSA states that these are “intended to foster innovation and provide flexibility while ensuring the CTPs operate in an appropriately regulated environment.”

The notice also mentions key risks related to these crypto platforms.

The notice does not introduce new rules specifically applicable to CTPs, as CTPs are already subject to existing requirements under securities legislation in Canada. Rather it provides guidance on how the existing requirements of securities legislation may be tailored through terms and conditions on the registration or recognition of CTPs and through discretionary exemptive relief with appropriate conditions.

The CSA is the group that represents provincial regulators that each have individual authority to regulate securities within their jurisdictions. IIROC is the pan-Canadian self-regulatory organization that oversees all investment dealers and their trading activity in Canada’s debt and equity markets.

Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers in Quebec, said the guidance in their notice details steps platform operators need to take to comply with securities legislation as they prepare to fully integrate into the Canadian regulatory structure:

“To bring their operations into compliance, CTPs should contact their local securities regulator now to discuss the registration process and address applicable requirements. We remind all CTPs that are dealing with Canadians, including foreign-based CTPs, that they are expected to comply with Canadian securities legislation. Failure to do so could result in CSA members pursuing enforcement action.”

Andrew J. Kriegler, President and CEO, IIROC

“We are pleased to work with the CSA on such an important initiative,” said Andrew J. Kriegler, President and CEO, IIROC. “This framework provides guidance on how the regulatory requirements may be tailored to a platform’s business, without compromising investor protection or market integrity.”

In 2019, the CSA and IIROC published Joint CSA/IIROC Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms, which outlined a proposed regulatory framework for CTPs, and solicited comments to better understand the industry, its risks and how regulatory requirements may be tailored. The CSA and IIROC reportedly received 52 comment letters in response to the consultation paper and consulted extensively with industry stakeholders on issues specific to CTPs.

The CSA said it is aware of CTPs seeking to become reporting issuers through an initial public offering or through reverse take-overs, changes of business, Capital Pool Company qualifying transactions or similar transactions. The CSA said there are potential public interest concerns with a CTP that is required to be registered, but that is not, becoming a reporting issuer.  CTPs and their representatives should contact their local securities regulator if they intend to become reporting issuers through an initial public offering or other transaction.

Canada Joint CSA IIROC Notice21-329 March 29 2021
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