Securities regulators may subject non-complying crypto currency platforms to legal action
The Canadian Securities Administrators (CSA) has issued a crucial update to cryptocurrency trading platforms that are still active in Canada as they move to comply with by applicable securities laws.
To continue operating while their application is being processed, CSA members now expect that such platforms will give their primary regulator a pre-registration undertaking.
By making these commitments, cryptocurrency trading platforms acknowledge that they are bound by terms and conditions that address investor protection issues and are commensurate with the regulations now in effect for registered platforms.
The first pre-registration undertakings were submitted by Coinsquare Capital Markets Ltd. and Crypto.com, which have been published by the Ontario Securities Commission. CSA members are negotiating pre-registration commitments with other cryptocurrency trading platforms. These commitments will be made available and made public on the CSA website.
If a cryptocurrency trading platform is unable to file an undertaking or does not adhere to its requirements, CSA members may seek legal action.
A notice describing the securities law rules that pertain to cryptocurrency trading platforms was published on March 29, 2021 by the CSA and the Investment Industry Regulatory Organization of Canada.
In the joint notice, the two pan-Canadian regulators outlined securities law requirements that apply to crypto asset trading platforms (CTPs), including how regulators may modify them for the CTPs' business model. These requirements apply whether CTPs trade crypto assets that are securities, derivatives, or contractual rights or claims to underlying crypto assets like bitcoin or ether.
Louis Morisset, president and CEO of the Autorité des marchés financiers, stated at the time, when he was also in his previous role as chair of the CSA before being succeeded by Stan Magidson: “The guidance in our notice details steps platform operators need to take to comply with securities legislation as they prepare to fully integrate into the Canadian regulatory structure.”
In addition to outlining risks particular to CTPs, the notice described possible interim measures that could be made accessible to these platforms in order to find a middle ground between ensuring their operation in a way that is appropriately regulated on the one hand and offering innovation and flexibility on the other.
“Accordingly, we contemplate that, as an interim measure, a Dealer Platform that trades Crypto Contracts may operate by seeking registration as a restricted dealer, provided it does not offer leverage or margin trading,” the notice said.
The CSA maintains a list on its website of all cryptocurrency trading platforms that are authorized to operate in Canada or that have given a member of the CSA a pre-registration undertaking.