Ontario Securities Commission Tells Crypto Trading Platforms to be in Compliance with Securities Law. Or Else…

The Ontario Securities Commission (OSC) has issued a statement that crypto trading platforms must be in compliance with existing securities law or they fact potential regulatory action. This news arrives around the same time 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.

The OSC states that platforms must contact OSC staff by April 19, 2021, to discuss how to bring their operations as a dealer or marketplace into compliance. If a platform currently trading in derivatives or securities in Ontario does not do so by this date, steps will be taken to enforce applicable requirements under securities law.

Importantly, the OSC adds that platforms located outside of Ontario that allow Ontarians access are regarded as operating in Ontario for the purposes of securities regulation.

“Unregistered crypto asset trading platforms expose Ontario investors to significant risks, including potential loss, theft and misuse of their assets. The recent explosion of unregistered platforms has magnified these risks,” said Grant Vingoe, Chair and CEO at the OSC. “Regulatory oversight serves a critical role in investor protection, and we expect platforms to act swiftly to bring themselves into compliance with Ontario securities law.”

The OSC reports that it has seen a large increase in the number of platforms currently offering crypto assets or crypto contracts to persons or companies located in Ontario. Recent market activity and investor interest in crypto trading platforms have fueled interest in cryptocurrency or digital assets. Platforms that are not registered with securities regulators are said to present significant risks to investors because investors’ assets may not be adequately safeguarded, and internal controls to manage the risks of the business may be lacking or non-existent.

Referencing the framework provided by the CSA/IIROC, the OSC says that platforms currently facilitating trading in security tokens or instruments or contracts involving crypto assets in Canada are required to register as an investment dealer and become a member of the Investment Industry Regulatory Organization of Canada (IIROC).

The OSC also adds that is aware of platforms seeking to become reporting issuers through initial public offerings (IPOs) or through reverse take-overs, changes of business, Capital Pool Company qualifying transactions or similar transactions. The OSC echos the CSA in saying there are potential public interest concerns with a platform that is required to be registered, but that is not, becoming a reporting issuer.

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