Canadian securities regulators propose crypto rules for investment funds

CSA is seeking feedback on next step of regulatory framework

Canadian securities regulators propose crypto rules for investment funds
Steve Randall

The Canadian Securities Administrators (CSA) is considering how to effectively regulate public investment funds that want to invest in crypto assets.

Proposed rules include restrictions on the type of funds that would be permitted to invest in crypto assets along with custodian obligations and the CSA is asking for stakeholder feedback on this, the second phase of a project to establish a regulatory framework for funds wanting to make these investments.

Last year, the CSA published guidance to help fund managers understand and comply with securities law requirements for public investment funds holding crypto assets (public crypto asset funds).

“We recognize the current regulatory framework for public investment funds needs to be adapted to address the unique aspects and risks of crypto assets,” said Stan Magidson, CSA Chair and Chair and CEO of the Alberta Securities Commission. “Formalizing these fundamental requirements will provide fund managers with greater clarity while we continue to assess whether a more comprehensive regime is required.”

Among the proposals there would be restrictions on investing in crypto assets with only alternative mutual funds and non-redeemable investment funds allowed to invest directly or indirectly in crypto assets, and only in crypto assets that are fungible and trade on a recognized exchange or are the underlying interest of a specified derivative that trades on a recognized exchange.

Custodians and sub-custodians of crypto assets would be required to keep the private keys in offline storage, maintain insurance, and obtain an annual assurance report on their internal controls and policies.

Also, mutual funds would be able to accept crypto assets as payment for their securities, subject to certain conditions, such as the crypto assets being acceptable to the fund’s portfolio advisor and consistent with the fund’s investment objectives.

The full text of CSA Notice and Request for Comment – Proposed Amendments to National Instrument 81-102 Investment Funds Pertaining to Crypto Assets is available on CSA member websites including the OSC.

Stakeholders can submit their comments in writing on or before April 17, 2024.