Canada Highlight New Regulation for Crypto Exchanges After QuadrigaCX Saga

Few months after the devastating news about QuadrigaCX, a Canadian exchange, the financial regulatory agencies in the country have been prompted to put forward a new proposal for regulating cryptocurrency exchanges in Canada.

The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) published a “Joint Consultation Paper” on Thursday, March 14, seeking input from the Fintech community, market participants, investors, and other vital stakeholders  on how regulatory requirements can be set up for digital assets trading platforms operating in Canada.

The publication highlights how regulation could be tailored to Canadian cryptocurrency exchanges. Though it also signifies Canada is continuing an open approach to a sector positively impacting its economy.

Andrew J. Kriegler. President and CEO of the IIROC noted that “the emergence of digital and crypto assets continues to be a growing area of interest.”

We must adapt to innovation, and provide clarity to the market about how regulatory requirements might best be tailored and applied to these unique business models while maintaining investor protection, he Advised.

While considering the “pros and cons” of cryptocurrencies, the regulators proposed applying securities laws wherever applicable.

First on the list of “risks related to platforms” is that investors’ crypto assets may not be adequately safeguarded.

The paper adds:

Platforms may not have necessary processes and controls in place to segregate participants’ assets from their own and to safeguard those assets, including maintaining and protecting any private keys associated with wallets held by the Platform.

Louis Morisset, CSA’s Chair said that exchanges too are open to the prospect of sensible regulation.

“Platforms have told us that a tailored regulatory framework is welcome as they seek to build consumer confidence and expand their businesses,” she noted while adding that

“[The] consultation outlines a proposed regulatory framework that provides clarity for platforms, greater market integrity and protection for investors.”

The future regulation may require digital assets platforms to register as marketplaces or investment dealers, or both depending on their structure. The eventual framework may also mean cryptocurrency exchanges are subject to derivatives rules in Canada.

For instance, if cryptocurrencies are securities and/or derivatives traded on an exchange, that exchange would be subject to securities and/or derivatives regulatory requirements. Most “utility tokens” have involved the distribution of securities, typically as investment contracts, the proposal stated.

However, none of the cryptocurrency exchanges in Canada is recognized as a legal entity nor authorized to operate as a marketplace, or a  dealer according to the paper.

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