Canadian Regulator Issues New Guidance For Crypto Exchanges

The authorities in Canada are in the crypto news today for issuing a new guidance which will determine which digital currency trading platforms fall under derivatives law. As we can see, the Canadian regulator which is the Canadian Securities Administration (CSA) explained the new provisions in the “Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets” document which was published on January 16.

In general, this new regulatory effort draws a line between trading platforms that make an immediate delivery of crypto assets to its users and the ones that hold the transaction of crypto assets until the user makes a later request.

All of this comes after an analysis of trading techniques on different platforms. In it, the CSA concluded that some of them only provide their users with a contractual right or claim to a crypto asset. They do not immediately transfer it to a user. The Canadian regulator clarified this and said that such crypto trading platforms are subject to securities legislation and thus fall under derivatives laws.

“Potentially, there will be ongoing reliance and dependence of the user on the Platform until the transfer to a user-controlled wallet is made. Until then, the user would not have ownership, possession and control of the crypto assets without reliance on the Platform. The user would be subject to ongoing exposure to insolvency risk (credit risk), fraud risk, performance risk and proficiency risk on the part of Platform,” the guidance reads.

As it stands, the CSA will not apply securities laws to crypto exchanges on which the underlying crypto asset is not a security or derivative. Crypto assets are also delivered to a user immediately.

Before this, we could see that state and provincial securities regulators in the United States and Canada launched probes into potentially fraudulent crypto investment programs as part of the North American Securities Administrators Association (NASAA) named “Operation Cryptosweep.” This initiative resulted in hundreds of investigations of initial coin offerings (ICOs) and crypto related investment products.

In late December 2019, the NASAA also said that crypto investment is among the top five investor threats for 2020. The Canadian regulator does not clearly think about this in the same way. Still, the NASAA said that “it is important for investors to understand what they are investing in and who they are investing with.”