An industry watcher believes Canada’s pragmatic approach to DeFi regulation could position it well in the future. Canadian Aaron Unterman is the managing director of Xreg Consulting.
Unterman said Canada’s approach to cryptocurrency regulation has been to apply its existing capital markets framework to crypto markets. That brings the advantage of not requiring legislative changes. It also allows regulators to maintain one set of rules for financial market participants.
The downside is that it may lack regulatory clarity. Rules may not be sufficiently tailored to the rapidly changing crypto market.
“It is still early days for DeFi regulation in Canada,” Unterman said. “However, Canada has played an active role in the creation of international DefF policy through the OSC and Autorite des Marches Financiers (AMF) participating in the IOSCO DeFi Working Group, which recently published a consultation report on Policy Recommendations for Decentralized Finance. Canada has always sought to embrace new technologies, and therefore, I expect that it may emerge as a leading jurisdiction for DeFi technologies.’
Canada’s approach is in stark contrast to its southern neighbor. They have not created target legislation and rules for crypto and DeFi markets. That is opposite to the American approach, which Unterman said is characterized by “a high level of regulatory uncertainty” due to its regulation-by-enforcement approach.
“Canada has demonstrated a willingness to work with crypto firms and has created a viable pathway to operate a regulated crypto business in the country,” Unterman said. “Crypto firms in Canada’s neighbour to the south would be overjoyed if U.S. regulators followed Canada’s leadership.”
Unterman said recent Canadian actions provide strong clues about what regulators will do next.
“As a member of the IOSCO DeFi Working Group, we can expect that Canadian jurisdictions will implement IOSCO’s Policy Recommendations for Decentralized Finance,” Unterman predicted. “This will involve either applying Canada’s existing capital markets framework or creating a bespoke approach for DeFi.
“Canadian regulators have demonstrated a willingness to adopt progressive approaches to the regulation of new technologies and work with market participants to achieve compliance. I believe that Canada will become a viable jurisdiction for DeFi business models and could become a global leader depending on the regulatory approach they adopt.
“Once IOSCO’s DeFi policy recommendations are finalized, I expect that Canadian regulators will begin by analyzing DeFi products, services, arrangements and activities to assess regulatory responses. In practice, this means that Canadian regulators will begin to engage with market participants in the DeFi industry and begin to formulate their regulatory approach for DeFi markets.”