The securities regulator in Canada, the CSA, has issued new guidance regarding crypto trade, and when it may fall outside of securities laws.
Canada makes a move to regulate crypto
Ever since the announcement of Facebook’s Libra back in 2019, regulators around the world started putting a lot more effort into regulating digital currencies. However, this still remains a relatively new asset class, which has yet to be adequately understood and defined.
Even so, at the start of 2020, Canada appears to be one of the most active countries when it comes to trying to regulate the crypto sector. Most recently, the country’s regulators, the Canadian Securities Administrators (CSA) issued guidance regarding crypto trades.
1/ The Canadian Securities Administrators released additional guidance on securities law and crypto exchanges today: https://t.co/ZJqUrkaSDK
— Matt “bitcoin” Burgoyne (@BurgoyneMatt) January 16, 2020
Securities laws do not cover the crypto industry adequately
The regulators’ goal was to clarify when crypto trades may fall outside of the country’s current securities laws, as the laws are not covering all instances in which cryptocurrencies can be used.
Furthermore, the regulator pointed out that, in some cases, crypto assets are clearly securities. As such, they should abide by securities laws. However, there are also cases where such laws do not apply, which was supposedly an issue brought up by some crypto trading platforms.
The CSA Chair, Louis Morisset, stated that,
The evolving landscape of the industry prompts us to clarify our regulatory framework so as to better support fintech businesses seeking to offer innovative products, services, and applications in Canada.
The difficulties in differentiating the purpose and nature of cryptocurrencies emerged in the last several years after the crypto trend blew up in late 2017. Since then, countless coins and tokens were issued as a way to raise funds, or for the community members to vote regarding future decisions. Some even come with dividend rights attached to them, which clearly makes them securities.
Crypto exchanges complicate the matter further
However, the problems still do not end there, and the situation is further complicated by crypto exchanges, and especially by the way that some of them operate. For example, crypto platforms that manage their users’ funds for them would have to follow securities laws, while non-custodial exchanges — which are mostly decentralized exchanges — are not required to.
In fact, according to Canadian regulators, all centralized crypto exchanges that provide their service to Canadians — whether they are onshore or offshore — will have to start following Canadian securities laws, or stop servicing Canadians.
Of course, there is also the fact that that centralized exchanges that do not offer any assets considered to be securities would not have to abide by Canadian securities laws, as well. In other words, the exchanges that do not list securities, as well as those that do not hold and manage users’ funds, both fall outside of the securities laws.
2/ Basically, provided the underlying crypto asset is not itself a security or a derivative, and the exchange's user agreement provides for immediate delivery and this actually happens…
— Matt “bitcoin” Burgoyne (@BurgoyneMatt) January 16, 2020
3/ the exchange likely won't be subject to securities laws. Key takeaways: (1) Exchanges should have well drafted user agreements which take all this into account (duh)…
— Matt “bitcoin” Burgoyne (@BurgoyneMatt) January 16, 2020
With all of these rules and examples from rules, it can be rather complicated to regulate the crypto space, but also to ensure regulatory compliance. Morisset concluded,
As we continue to consider the comments and responses to the consultation we launched last year, the staff notice published today will help platform operators to determine whether their activities are subject to securities legislation.
What do you think about the future of cryptocurrency in Canada? Let us know in the comments below.
Image via Shutterstock, Twitter @BurgoyneMatt