Tighter Regulation for Cryptocurrencies in Canada

While the Canadian Securities Administrators (CSA) has brought regulation around cryptocurrencies back into focus, some uncertainty remains.

“Because of the novelty of the services and products, i.e., crypto assets that are similar to commodities but are sometimes considered securities or traded in a way that makes them derivatives, it was reasonable to clarify the situation of the sector in Canada,” says Frank Hepworth of the law firm Borden Ladner Gervais in an interview with Les Affaires.

However, the nature of the upcoming changes are uncertain as the conditions for registration as a dealer or marketplace will only be determined during the registration process. However, this will not prevent users from trading their cryptocurrencies.

It seems logical, however, that the CSA would want to regulate these assets like their financial industry counterparts, in order to avoid risks to investors. Moreover, with this in mind, the authorities plan to impose investment limits. But in an effort to be open-minded and to underscore their “appreciation for innovative industries in Canada,” regulators have said they are prepared to prescribe customized exemptions, Hepworth said. For now, the only provider to benefit from such an exemption is Wealthsimple Crypto.

In addition to these specific regulations, crypto players must also be subject to the regulation of brokers and securities markets. This means they must meet certain specific requirements for personnel, operations, reporting standards, auditing, disclosure, etc.

Regulators have indicated, however, that new models may emerge over time on a case-by-case basis.

Canada first in class ?

Canada has implemented these rules while the rest of the world is still wavering on how to approach cryptocurrencies. “The approach being taken around the world to the cryptocurrency industry is: innovation first, regulation second,” reports law firm BLG.

“The guidance provided by Canada’s regulators over the past two years is progressive in that it speaks directly to its domestic crypto industry – a step that many other jurisdictions have yet to take,” it adds.

The time between innovation and regulation depends on the regulators in each country. Obviously, the cryptocurrency industry is complex, and to support innovation, the regulator must get out there.

“Regulators are in a difficult position, especially Canadian regulators who are just one player in a much larger game. Universal ground rules have not been adopted, so each country is doing its best to protect investors, public policy interests and promote innovation,” says Borden Ladner Gervais.

But it’s worth noting that many Canadian investors who want to get into cryptocurrency won’t subject themselves to regulatory restrictions, simply because cryptocurrencies make it easy to access unregulated markets.

“DeFi (decentralized finance) is an increasingly popular term, referring to the phenomenon that an Internet-native financial services infrastructure is being built,” explains Frank Hepworth. By using a mobile application, customers can access crypto platforms without going through the traditional financial process of product and customer evaluation.

We can see that this way of doing things is far from being shunned. The offshore platform Binance, which is also the world’s largest cryptocurrency exchange, trades approximately $47 billion Canadian dollars ($B) daily. Coinbase, the largest regulated platform in the U.S., trades nearly ten times less volume by comparison.