The Canadian Securities Administrators (CSA) has said it wants to adapt current securities regulations to specifically address crypto assets in its 2019-2022 business plan.
The regulatory agency has added a section on DLT in the business plan which focuses on understanding and regulation of the market.
The CSA said in its business plan it is considering developing a “regulatory regime” tailored toward crypto trading platforms that are subject to securities or derivatives regulation. The plan stems from a desire for the CSA to consider the implications of emerging technologies, including social media and innovations in distributed ledger technology (DLT) like blockchain.
Emerging technologies often create regulatory challenges because of unknown implications of the technology itself, coupled with the lack of regulatory clarity. Market participants are often affected by shifts in market conditions, investor demographics, technological innovations, and globalization. In response to these challenges, the CSA recognized that the Canadian securities regulatory system must keep pace with the evolving nature of capital markets.
Under the Plan, the CSA intends to consider the implications of emerging technologies, including distributed ledger technology (DLT). Blockchain technology, as a form of DLT, is often used in the management system in which cryptocurrencies are exchanged within. As such, the CSA recognized that DLT has the potential to transform the landscape of the financial industry given the prevalence of crypto-assets. As stated in its Plan, the CSA has said it will consider possible changes to adapt the current regulatory framework to address the unique challenges of crypto assets falling within the CSA jurisdiction.
CSA will Propose a regulatory regime for crypto-asset trading platforms, consider custodial requirements in relation to crypto-assets and consider the capital raising and issues that may be unique to aspects of blockchain-based securities.
Months prior to the release of the Plan, the CSA and the Investment Industry Regulatory Organization of Canada (IIROC) jointly published a consultation paper proposing a regulatory framework for crypto-asset trading platforms.
The CSA noted:
“There are currently no platforms facilitating the secondary trading of crypto-assets that are regulated as a marketplace in Canada, some of these platforms, depending on how they operate and the crypto-assets they offer, may be subject to securities or derivatives regulation.”
Preventing a Possible QuadrigaCX Scenario
The intended regulations are presumably intended to subvert possible future QuadrigaCX scenarios. At the end of last year, Quadriga, a Vancouver-based crypto trading platform lost access to approximately $190 million CAD, after the CEO Gerald Cotton passed away in India.
The Quadriga scandal served as a wake-up call for securities regulators as well as investors that Canada was yet to come up with rules and regulations to avert the loss of millions of clients’ money from being lost due to lack of a supervisory body.
Canada does not have a securities regulatory authority at the federal government level. The CSA itself is not a federal body, but a coalition of all existing securities regulators from Canada’s 10 provinces and three territories each with its own enforcement power and regulatory framework. In addition, the definition of securities in Canadian securities laws do not define cryptos and tokens making it harder for law enforcers to deal with fraudulent elements in the industry.
Do you think a legal framework will help the crypto industry to grow in Canada? Let us know in the comments section.