A recent article by Ossowski and Clement seriously mischaracterizes the Canadian regulatory environment for crypto assets.
The Canadian Securities Administrators (CSA), the umbrella body for all Canadian provinces and territories’ securities regulators, including the Ontario Securities Commission (OSC), have a consistent view on cryptocurrency regulation.
In virtually all cryptocurrency trading platforms, the relationship between investors and platform operators depends on the selection of assets to trade, how those assets are marketed and sold, risk disclosure, and, importantly, critical communication to operators. characterized by a strong dependence. The security of a valid custody agreement. Investors only have contractual claims on the underlying crypto assets.
We are all at risk of the failure of Canada-based QuadrigaCX and the grim story that it was a Ponzi scheme shrouded in innovation lingo that cost mostly Canadians well over $100 million. Observed reality exposure. This was a formative event for the development of crypto regulation.
Ontario’s definition of security is broad and technology-neutral. Canadian regulators have numerous precedents for applying its definition to unregistered online trading platforms offering products such as commodity warehouse schemes, contracts for difference (CFDs), foreign exchange (foreign exchange) contracts, and binary options. I’m here. We consider the entire arrangement that the Platform enters into with investors as a security. Nevertheless, over time, Bitcoin and Ether have evolved to be characterized as commodities. As a result, the platform is subject to dealer registration. These cryptocurrency contracts can also be derivatives because their value depends on the value of the underlying earnings, just as swaps are derivatives because they are based on indices or gold. Additionally, the platform expressly sells crypto derivatives that are essentially off-exchange futures contracts, which are also arguably within the jurisdiction of her CSA members.
Regulatory efforts are underway in the United States, but the U.S. authorities have been unable to provide clarity due to the division of jurisdiction between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). I am facing a challenge. Canada faces the challenge of coordinating the securities regulators of its multiple provinces and territories, but they all share a single jurisdiction over securities and derivatives.
Canadian securities regulators have said platforms offering these crypto assets to Canadians must adapt to the way they do business but be subject to conduct and prudential regulation, along with a core commitment to investor protection. They must be subject to the same scrutiny and constant inspection as any dealer. History shows that sunlight is indeed the best disinfectant, and its lack leads to market failure, fraud, and fraud.
As partners with other financial services regulators and law enforcement agencies, we recognize the need to protect against criminal activity, especially money laundering and terrorist financing. As market regulators, we have a shared commitment to combating market manipulation, improper promotion and insider trading.
The OSC believes the Investment and Industry Regulatory Organization of Canada (IIROC), the investment dealer self-regulatory body that governs conduct, prudential regulation and market surveillance, is the appropriate destination for most of these companies. We usually trade with individual investors. Direct regulation by the OSC is a temporary measure to become an IIROC member. Excluding the most speculative asset platforms from his IIROC oversight is not sound public policy, but it is for dealers involved in capitalizing businesses that can develop the economy and support stable retirement savings. request.
Alluded to in the editorial is the question of how large global players have come to have unregistered two-tier systems while there are regulated companies based in Canada. The answer is that global corporations are established in crypto safe havens and places where regulations are obscure, and initially primarily operate internet-based businesses without a permit from their home country or the jurisdiction in which the intended investors reside. It means that I was doing The fact that comprehensive U.S. regulation has been delayed by definitional and jurisdictional issues has allowed this situation to thrive for too long.
We had a strong interest in regulating homegrown players likely to acquire an increasing percentage of Canadian assets. We wanted to avoid becoming a possible systemic risk. As many in the now established crypto world agree, regulation is a key to trust and adoption. We are committed to ensuring that the Canadian regulated entity system is worthy of the trust that regulated status provides. Our hope is that Canadians will look to companies that have complied with Canadian regulations.
Global players must determine whether accessing Canadian investors in accordance with Canadian law merits compliance efforts. I don’t want any other sanctions. They want to maintain good standing in the established stock market. We have already successfully taken enforcement action against global players who feel differently.
The authors point out that efforts to block Internet access by Canadians can be circumvented by VPNs. this is true. However, if the platform confirms the encouragement of this or any other action to attract Ontario investors after agreeing to block access, it treats such misconduct equating to repeat offenses and the most serious We demand good results. Compliance systems are improving rapidly and we demand vigilance. The ultimate solution to residual risk lies in increased international regulatory cooperation.
The authors also point out differences in the treatment of some global platforms that allow Canadians to trade from one province and not another. It stemmed from our decision to set a deadline to start walking. If I missed a deadline or said I didn’t want to do business in Ontario, I had to stop providing services in Ontario or face enforcement. Other states did not impose the same deadlines and had different results. Banning non-compliant companies from offering services in Canada remains a challenge, but we are making progress.
This week, CSA members accepted pre-registration commitments from two companies, including some large global companies. This is to ensure basic investor protection is in place while the company moves through the registration process. All unregistered companies doing business in Canada are expected to offer these businesses while their applications are being processed.
The authors erroneously attribute differences in approaches between CSA jurisdictions to the lack of two-way passports with Ontario. that is wrong. Two-way passports for registering restricted dealers such as cryptocurrency trading platforms are not in CSA jurisdictions. That new business needs adjusted terms. All jurisdictions deserve consideration before adopting new business models in the Canadian market so they can benefit from best practices. While it may be difficult for both regulators and companies to go through this joint process, it is one that respects Canada’s federalism. It reflects a fundamental misunderstanding of how the regulatory regime works.
The role of securities regulators is not to pick economic winners or losers, but to create a competitive environment in which investors, innovators and entrepreneurs can participate with confidence.
We will continue to prioritize investor education to ensure that investors are well-informed about the sector and better understand the potential risks involved.
Canada’s securities regulation approach to crypto-assets is principled, pragmatic, and prudent, with the aim of protecting investors and creating a level playing field that fosters competition and innovation in the crypto sector. I came.