Canadian Securities Administrators (CSA), in conjunction with the Investment Industry Regulatory Organization of Canada (IIROC), has published guidance on how securities legislation should be applied in the crypto trading platform, which includes Crypto Asset Trading Platforms (CTPs). The guide proposes the opening of a pathway for CTPs to operate in Canada within the existing security regulatory framework. The guidance is also meant to issue warning to those not complying with the enforcement actions which may be applied against them.
Some of the requirements that apply to CTPs include complying with the key risks identified by CSA and IIROC in their operation. There may be some flexibility in the application of the requirements to the CTPs. Some of the steps that a CTP may need to take to integrate into the securities regulatory framework include reviewing application requirements, identifying areas where flexibility is available, and how regulatory application will be applied to a CTPs. It may also take interim steps before fully getting integrated into securities.
Apart from indicating that CTPs operating in Canada are subject to the current securities regulatory framework, the guidance notice further added that firms that add crypto asset products would need to report changes its activities to the principal regulator of IIROC in the case of dealers.
The Notice further added that CSA members could take legal action against CTPs not complying with the requirement, whether operating in Canada or outside Canada, as long as they have Canadian clients.
Ontario Securities Commission (OSC) was even more open in delivering a message to Crypto Asset Trading Platforms affirming that they must operate within OS law or face regulatory action. CTPs were given a deadline until April 19, 2021, to contact OSC staff to initiate a compliance discussion failure which enforcement will be taken under the security law.
The Notice drafting began in 2019, whereby CSA members offered guidance regarding reporting issues in the crypto assets industry. The direction provided included disclosure of risks related to crypto assets to enable their safeguarding.
The regulation of dealers’ platforms requires that they register as dealers in the existing securities legislation. A Dealer Platform is the only one that offers distributions or trading of Security Tokens. A Dealer Platform does not engage in the offering of leverage, registration, or margin, except when the dealer is registered as an investment dealer.
Cryptocurrency dealers are also required to register in the appropriate dealer categories. The registration of CTPs except them from making deals with the general public. The dealership ties the activities of a dealer based on the nature of CTPs and the business model.
On the other hand, Marketplace Platform will operate under the oversight of CSA. The only self-regulatory entity that fits this category is the IIROC. Trading on a Marketplace Platform is subject to market integrity requirements. If a Marketplace Platform conduct activities similar to those of a dealer, it will be required to register as a dealer.
Although a deadline for discussion has been set, CSA acknowledges that it will take time to obtain a dealer or IIROC membership. CSA also believes that some CTPs may be interested in testing the market to access their technical merits before fully registering.