Canadian Financial Authorities Look For Input On Crypto Regulation

Against the backdrop of the QuadrigaCX debacle, the CSA and IIROC look to combine global and Canadian-specific ideas to build a regulatory framework tailored to cryptocurrency platforms.

  • Two Canadian financial authorities have published a consultation paper to solicit feedback from the country’s FinTech community, market participants, and investors regarding the implementation of regulatory frameworks for Canadian cryptocurrency platforms. Published jointly by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC), the two financial authorities note that Canadian crypto platforms have informed them that a regulatory environment is welcome in order to help “build consumer confidence.”

    As stated in the consultation paper, currently, Canada does not recognize cryptocurrency platforms as exchanges authorized to operate as marketplaces or dealers within the country. The most the CSA has done regarding crypto is remind investors of the inherent risks associated with cryptocurrency futures contracts and emphasize the need for caution when investing with crypto asset trading platforms.

    The publication focuses on tailoring the creation of crypto regulation to better suit the “novel features” associated with crypto platforms. In order to tailor the regulation creation process, the CSA and IIROC have outlined what they believe to be key areas for consultation. The CSA and IIROC want to tackle issues regarding the custody and verification of assets, fair price determination to promote efficient capital markets, and digital asset insurance.

    The authorities also touch on the possibility of conducting independent system reviews (ISRs) of cryptocurrency platforms. ISRs are put in place to “manage risks associated with the use of technology and to ensure that minimum standards are maintained.” According to the paper, all marketplaces are required to have an ISR conducted on their system but, interestingly enough, the questioned posed to the FinTech community is: Under what circumstances should cryptocurrency platforms, or specific cryptocurrency services, be exempt from ISRs?

    Though the two financial authorities wish to create a regulatory framework, they don’t expect every piece of regulation to be created from scratch. The paper outlines steps taken by the US, Singapore, Hong Kong, Malaysia, the European Financial Instruments Directive, and the European Securities and Markets Authority to create crypto regulator frameworks. The paper specifically asks respondents to suggest any global approaches that would be appropriate for the Canadian authorities to consider and implement.

    Though not explicitly stated, the paper does seem to be (at least in part) a response to the QuadrigaCX debacle that has gripped the cryptosphere since the beginning of February. Last month, the British Columbia Securities Commission (BCSC) spoke with Reuters regarding the regulation of QuadrigaCX and investigating the $250 million the exchange owes its users. The BCSC said that because the exchange does not deal in what the country currently considers securities or derivatives, the BCSC would not be looking into the exchange‘s currency creditor protection proceedings.

    For those interested in responding to the CSA and IIROC’s questioned posed throughout the consultation paper, submissions are open until May 15.

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