Crypto Firms Regulations are in Place, Says Canadian Securities Administration

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On March 29, Canadian Securities Administration (CSA), in a notice, clarified that regulations for crypto firms are in place. The Investment Industry Regulatory Organization of Canada (IIROC), in conjunction with CSA, said that they are also exploring existing crypto regulations.

In 2019, two organizations published a consultation paper that proposed a crypto framework. CSA says that the growing interest in bitcoin, for instance, has led to the adoption of a variety of digital assets such as exchange-traded funds (ETFs).

The regulators have also seen the need for commitment which ensures that investors are protected. This can be done by including interim approaches for dealer and marketplace platforms.

In such cases, venues will need to seek registration to ensure that they do not offer leverage or margin. In that situation, the interim approach would then need to transform into long term solution.

If a marketplace platforms carry out exchanges, it may qualify for an interim approach; the securities regulators will also determine whether to recognize the platform as an exchange or an interim.

However, CSA has not determined how to treat clearing and settlement processes. However, the notice affirmed that they might consider imposing some terms and conditions on registrants.

“In order to provide flexibility in these cases, we will look at the specific risks presented by the clearing functions to determine whether a [crypto asset trading platforms] will be required to be recognized as a clearing agency or exempted from the requirement to be recognized and what terms and conditions should apply.”

Though the regulations guideline seems to foster innovation, it also reminds venues that they are still under the existing regulations. The guideline also shows how digital asset risks can be managed. CSA says that interim measures are only applicable if risk and requirements are adequately addressed.

The notice, however, did not provide a clear interpretation, especially for the firms’ operating over the counter. CSA hopes to provide a clear framework in the future that will include traders and marketplaces operating over the counter.

IIROC agrees that a different review process for crypto is needed and implementation of a novel business model. That model will grant membership with conditions and exemptions. That will be different from how dealers are currently admitted.

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