Canada Tightens Requirements for Crypto Platforms Following Recent Insolvencies

The Canadian Securities Administrators (CSA) have tightened requirements for platforms in the crypto exchange sector.

The CSA is an entity that works to coordinate regulation with the various provincial and territorial securities regulators. Unlike the US Securities and Exchange Commission, it does not have federal authority but recognizes the benefits of harmonized rules.

The CSA published a notice today outlining expectations for “crypto asset trading platforms” (CTPs) that operate in Canada while they seek registration and related exemptive relief.

The new requirements have been driven by the crypto contagion and failures of multiple digital asset firms. To quote the notice:

“In light of recent insolvencies involving a number of CTPs, including Voyager Digital, Celsius Network, the FTX group of companies, BlockFi and Genesis Global (collectively recent CTP insolvency events), we are introducing important new investor protection provisions into the standard form of PRU. The PRU is required by CSA members as a precondition to CSA members allowing unregistered CTPs to continue to operate while the CTPs pursue their applications for registration and related relief. PRUs contain commitments by CTPs that the CTPs will operate in a certain manner during the registration process. These commitments are generally consistent with requirements currently applicable to registered CTPs and are intended to address investor protection and level-playing-field concerns…”

Stan Magidson, CSA Chair and Chair and CEO of the Alberta Securities Commission, said the recent insolvencies have highlighted the tremendous risk affiliated with crypto exchanges.

According to the CSA, these pre-registration undertakings will include, enhanced expectations regarding the custody and segregation of crypto assets held on behalf of Canadian clients and a prohibition on offering margin, credit, or other forms of leverage to any Canadian client. They will also prohibit CTPs from permitting clients to purchase or deposit value-referenced crypto assets (commonly referred to as stablecoins) and proprietary tokens without the prior written consent of the CSA.

The CSA warns that if a CTP is unwilling to adhere to the above, it will take appropriate action to off-board existing Canadian users and impose restrictions to prevent Canadian users from accessing its products or services.

Once again, the CSA reminds Canadians of the risks associated with trading crypto.

 


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