Canadian Securities Administrators and Investment Industry Regulators Propose Crypto Framework

The Canadian Securities Administrators (CSA) and Investment Industry Regulatory Organization of Canada (IIROC) have jointly published Consultation Paper 21-402: 'Proposed Framework for Crypto-Asset Trading Platforms'.

The stated purpose of the Consultation is to 'establish a framework that provides regulatory clarity to Platforms, addresses risks to investors and creates greater market integrity'.

In this regard, the Paper seeks opinions from the FinTech community and other stakeholders on how a regulatory framework could be developed in respect of Platforms, operating in Canada, that engage securities law.

The Consultation Paper notes that there are over 2,000 crypto assets 'that may be traded for government-issued currencies or other types of crypto assets' on over 200 Platforms 'that facilitate the buying and selling or transferring of crypto assets'.

However, the Paper expresses concern that many Platforms 'operate globally and without any regulatory oversight', resulting in an increased risk of loss and theft.

In seeking to address the implications of this, the CSA and IIROC have engaged with regulators around the world through the International Organization of Securities Commissions (IOSCO) so as to establish global approaches to regulation.

The Paper highlights that some Platforms may have characteristics that make them subject to securities regulation, and the CSA is - through its Regulatory Sandbox - actively engaging with a number of Platforms that are seeking guidance in this area and welcome the creation of a regulatory framework in the interests of building consumer confidence.

With no Platforms currently being recognized as an exchange or being authorized to operate as a marketplace or dealer in Canada, the CSA advises citizens to be exercise caution when considering the purchase of crypto assets.

The Paper also recognizes that owing to the unique features inherent in some Platforms, they may not be fully encompassed by the existing regulatory framework.

Accordingly, where securities laws apply, a new regulatory framework is proposed.