Canadian Securities Administrators Updates on Crypto Exchanges Operating in Country, Stablecoins Could be Securities

The Canadian Securities Administrators (CSA) says they are “strengthening their approach” to crypto exchanges providing services in Canada following recent events. The CSA is alluding to the bankruptcy of FTX and all of the other failures and crypto firms that have been impacted by the market contagion.

CSA states that it is “expanding existing requirements” for crypto exchanges.

This past August, the CSA announced that it expects unregistered crypto exchanges to pursue a pre-registration undertaking (PRU).

To quote the CSA:

“If a platform currently subject to securities legislation in Canada does not deliver a PRU to its principal regulator or cease operating, the CSA will consider all applicable regulatory options to bring the platform into compliance with securities law, including enforcement action. CSA members will shortly communicate to platforms a deadline by which PRUs must be delivered. Platforms located outside of Canada that are accessible by Canadians are regarded as operating in Canada for the purposes of securities regulation.

Crypto trading platforms giving these undertakings agree to comply with expanded terms and conditions that will include, among other things, requirements to hold Canadian clients’ assets with an appropriate custodian and segregate these assets from the platform’s proprietary business, as well as a prohibition on offering margin or leverage for any Canadian client.”

The CSA adds that custodians will generally be considered qualified if they are regulated by a financial regulator in Canada, the U.S., or a similar jurisdiction with a supervisory regime for conduct and financial regulation.

CSA members will contact registered crypto trading platforms individually to discuss the application of the expanded terms and conditions to those firms.

The CSA says it will continue to monitor and assess the role of stablecoins adding that these digital assets may constitute securities or derivatives.

Crypto trading platforms that are registered or pre-registered are prohibited from permitting Canadian clients to trade, or obtain exposure to, any crypto asset that is itself a security and/or a derivative.

Crypto trading platforms are expected to have established policies and procedures to determine whether each crypto asset they provide exposure to is a security and/or derivative.

Canadian investors are urged to exercise caution before investing in crypto and should use a platform that is registered with CSA members.

The CSA is the association that represents the different provincial securities regulators.

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