A flurry of announcements from regulators, including the Canadian Securities Administrators (CSA), the Investment Industry Regulatory Organization of Canada (IIROC) and the Ontario Securities Commission (OSC), all put crypto asset trading platforms on notice that they must bring their operations into compliance with Canadian securities laws or face enforcement action.
In Ontario alone, the platforms have until just April 19, 2021 to contact OSC staff to discuss how to bring their operations as a dealer or marketplace into compliance. “If a platform currently trading in derivatives or securities in Ontario does not do so by this date, steps will be taken to enforce applicable requirements under securities law,” the OSC announced in a statement March 29. “Platforms located outside of Ontario that allow Ontarians access are regarded as operating in Ontario for the purposes of securities regulation.”
Explosion of unregistered platforms
Grant Vingoe, chair and CEO at the OSC, adds that unregistered crypto asset trading platforms (CTPs) expose investors to significant risks including loss theft, and misuse of investor assets. “The recent explosion of unregistered platforms has magnified these risks,” he says. “Regulatory oversight serves a critical role in investor protection. We expect platforms to act swiftly to bring themselves into compliance with Ontario securities law.”
Looking at CTPs across the country, meanwhile, the CSA and IIROC published a joint notice outlining securities law requirements that already apply to CTPs, and how they might be tailored by regulators for the CTPs business model.
Key risks outlined
The notice provides guidance on applicable securities law requirements, regardless of whether the platforms trading crypto assets are trading securities, derivatives or contractual rights or claims to the underlying crypto assets. The notice also outlines key risks related to CTPs and areas where requirements may be tailored, provided those key risk are addressed. In the notice, the CSA says, depending on the business model and the activities conducted by a CTP, the regulatory treatment of one CTP may differ from another.
“The guidance in our notice details steps platform operators need to take to comply with securities legislation as they prepare to fully integrate into the Canadian regulatory structure,” says Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers. “To bring their operations into compliance, CTPs should contact their local securities regulator to discuss the registration process and address applicable requirements.”
IIROC and the CSA published its proposed framework for CTPs back in 2019 for comment. It received 52 responses. The CSA and the OSC both add that they are aware of CTPs seeking to become reporting issuers through an initial public offering, reverse takeover, changes of business, capital pool company qualifying transactions or similar transactions. They add that CTPs should contact their local securities regulator if they intended to become reporting issuers through such a transaction.
“We remind all CTPs that are dealing with Canadians, including foreign-based CTPs, that they are expected to comply with Canadian securities legislation,” Morisset adds. “Failure to do so could result in CSA members pursuing enforcement action.”
New members of crypto asset working group announced
Finally, in a related but separate announcement, IIROC announced the new members of its crypto asset working group of industry practitioners, including legal and compliance experts, academics and other professionals. The group, chaired by IIROC’s senior vice president of market regulation, Victoria Pinnington, will assist IIROC by providing advice on proposed rules, guidance and other policy matters related to the regulation of crypto assets. “For the past two years, IIROC has been focused on working with the CSA, building internal expertise and resources and analyzing IIROC rules to support this new industry,” they write.