Coinbase, an internationally recognized cryptocurrency exchange, recently obtained registration as a “restricted dealer” by the Canadian Securities Administrators. This registration is the first of its kind for the new Canadian cryptocurrency regulatory guidelines. This blog will provide an overview of these guidelines and how they may apply to a platform in the cryptocurrency space.
The Canadian Securities Administrators
The Canadian Securities Administrators (also referred to as the “CSA”) is an umbrella organization comprising securities regulators across Canada. Its primary mandate is to coordinate and harmonize regulation of the Canadian capital markets. It facilitates collaboration among its members to develop and implement consistent regulatory policies and practices, aiming to protect investors, maintain fair, efficient, and transparent markets, and promote capital formation.
While each member jurisdiction retains its regulatory authority, such as the Ontario Securities Commission in Ontario, the CSA provides a forum for cooperation and the development of national policies, guidelines, and rules to ensure a cohesive and effective regulatory framework for the Canadian securities industry. It is through this mandate that the CSA regulates crypto asset trading platforms.
CSA Regulation of the Cryptocurrency Market
In 2019, the CSA, together with the Investment Industry Regulatory Organization of Canada (“IIROC”), published Joint Consultation Paper 21-402: “Proposed Framework for CryptoAsset Trading Platforms” and Staff Notice 21-329: “Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements,” which established the Canadian regulatory framework for crypto trading platforms. In essence, the CSA and IIROC stated that Canadian securities laws apply to trading platforms if they deal with crypto assets that are securities or derivatives or if crypto assets are held on behalf of customers.
The consequence of trading platforms being subject to securities legislation is that they would need to comply with regulatory requirements similar to traditional securities exchanges. This includes registering with securities regulators, adhering to specific operational and reporting standards, and being subject to ongoing regulatory oversight.
The CSA and IIROC continually issue new guidance on how securities legislation may apply and the compliance requirements for trading platforms. For example, in 2021, the CSA and IIROC published Notice 21-329, “Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements,” which provided the following guidance for marketplaces and dealers while also mandating an “interim approach.” During this two-year period, trading platforms could register as “restricted dealers” while working through the registration process.
It is prudent that businesses that purchase, sell, or facilitate the sale of crypto assets maintain familiarity with CSA guidelines, which are often posted on the CSA website.
Registration of Cryptocurrency Platforms
As mentioned above, to comply with securities legislation, trading platforms are required to register with any applicable provincial or territorial securities regulators, such as the Ontario Securities Regulator. However, the registration process typically includes the following key steps:
- Application: completing and submitting the required forms, which disclose information about business operations, ownership, compliance policies, etc.;
- Business Operations: providing a business plan that may consist of the platform’s strategy, financial projections, etc.;
- Financial Statements: the platform may be required to demonstrate its financial viability and compliance with capital requirements; and
- Anti-Money- Laundering/ Know-Your-Client Procedures: the platform may be required to provide information about the above compliance procedures.
The platform will likely also be required to sign a pre-registration undertaking to continue operations while the registration application is under review. These undertakings are a set of actions or commitments that a platform agrees to undertake as part of the registration process.
A list of platforms with pre-registered undertakings, as well as registered and restricted dealers in Ontario is provided here. It is prudent that crypto investors understand which platforms have been registered with their respective regulators so that they can safely participate in the crypto market.
Contact the Lawyers at Bader Law for Advice and Guidance Regarding Fintech and Crypto
The trusted business lawyers at Bader Law have decades of experience assisting clients throughout Mississauga, Oakville and the Greater Toronto Area with corporate structuring, financing, and secured lending. Our comprehensive legal guidance also includes helping crypto start-ups with business structure and licensing matters. We provide dynamic business law advice and solutions for companies working within the crypto and fintech sectors. To speak with a member of our talented business law group regarding your corporate matter, contact us online or call us at 289-652-9092.