Trading Platforms in Canada
The Investment Industry Regulatory Organization of Canada (“IIROC”) recently issued new guidance, together with the Canadian Securities Administrators (“CSA”), regarding crypto-trading platforms (CTPs). Notice 21-329″ Guidance for crypto Asset Trading Platforms (“CTPs”). Notice 21-329 “Guidance for crypto asset trading Platforms: Compliance with regulatory Requirements” does not impose new rules but rather clarifies how industry should comply with the existing regime.
The Notice contemplates different guidance for CTPs that Canada operate similar to marketplaces (“Marketplaces”) and those CTPs that trade security tokens or crypto contracts (“Dealers”). Importantly as well, the Notice confirms that Canadian securities laws apply to CTPs serving Canadian clients, even if the CTP is operating from outside Canada.
At the same time, the Ontario Securities Commission (“OSC”) directed CTPs to contact OSC staff by April 19, 2021 to discuss how to bring their operations into compliance with Ontario securities law. The Notice states that if their is a failure to do so . steps will be taken to enforce applicable requirements under securities law.”
Background and Regulatory Framework
On March 14,2019, the CSA and IIROC published joint Consultation paper 21-402 entitled “Proposed framework for CTPs. Canadian securities regulators have explained that CTPs deal with either crypto assets that are securities or derivatives or crypto assets that. while not securities or derivatives themselves, are held on behalf of customer thereby creating a security are subject to securities laws.
The Notice is one example of regulators keeping pace with and responding to marketplace developments. These regulators appear to recognize the balance between protecting market integrity and not stifling innovation. “The overall goal of the approach outlined in this Notic is to ensure there is a balance between needing to be flexible in order to foster innovation in the Canadian capital markets and meeting our regulatory mandate of promoting investor protection and fair and efficient capital markets.
Details of the notice
Key provisions in the Notice include:
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Marketplaces”
1. Marketplaces may be required to register as investment dealers and become members of IIROC if they conduct activities similar to those performed by Dealers or take custody of client assets.
2. Marketplace that offer security tokens or crypto contract services may also require prospectus exmptions to facilitate the distribution of or trades in tokens and crypto contracts.
2. Dealers
1. Dealers that distribute or trade security tokens or enter into crypto contracts exclusively on a prospectus exempt basis and Canada that do not offer margin or leverage may register as exempt market dealers or restricted dealers.
3. Two year “interim approach”: The Notice stipulates a tow year transition period (hte interim period) in which a CTP can register as a restricted dealer with the CSA while working toward IIROC membership, provided that it does not offer leverage of margin trading. During the interim period. IIROC staff integrity and investor protection.
Crypto at the Commission
As Marketplaces and Dealers become more pervasive and established, the regulator will take more of an interest in ensuring compliance with the regulatory regime. Crypto stakeholders should heed the OSC’s recent warning and appreciate that the oversight of this emerging industry is and will be intense”
It must also be clear that, while the Commission encourages innovation in the capital markets, it will not do so at the expense of fair and efficient markets.
Conclusion
The Notice gives Canada a further glimpse into a new future of increased oversight of the cryptocurrency space.This guidance suggests that the cryptocurrency industry may, in the future, attract as much scrutiny as other more traditional securities. Cryptocurrency industry participants who are, or may find themselves, caught by the new regulation should endeavour to take appropriate steps as soon as possible Canada.