The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have launched a public consultation on the proposed framework for crypto-asset trading platforms (Platforms) in Canada. The consultation aims to gather input from stakeholders on how to best regulate Platforms that facilitate the buying, selling, or transferring of crypto assets, such as Bitcoin, Ethereum, and other digital tokens.
Why regulate Platforms?
Platforms are currently operating in a regulatory grey area in Canada, as they may fall under securities and/or derivatives laws depending on the nature of the crypto assets they trade and the services they offer. The CSA and IIROC have identified several risks and challenges associated with Platforms, such as:
- Lack of investor protection and market integrity
- Operational and cybersecurity vulnerabilities
- Money laundering and terrorist financing concerns
- Legal and tax implications
- Cross-border and international issues
The regulators believe that a tailored regulatory framework for Platforms is needed to address these risks and challenges, and to foster innovation and competition in the crypto-asset sector.
What is the proposed framework?
The proposed framework is based on the existing regulatory requirements for marketplaces, dealers, and clearing agencies, but with modifications to reflect the specific features and risks of Platforms. The proposed framework would apply to Platforms that operate in Canada or have Canadian participants, regardless of where they are located.
Some of the key elements of the proposed framework are:
- Platforms would be required to register as an investment dealer and become a member of IIROC
- Platforms would be subject to market rules and oversight by IIROC as a market regulator
- Platforms would be required to comply with securities legislation, such as prospectus, trade reporting, and disclosure requirements
- Platforms would be required to implement policies and procedures to manage conflicts of interest, ensure fair and orderly markets, and protect client assets
- Platforms would be required to have adequate systems and controls to ensure operational resilience, cybersecurity, and business continuity
- Platforms would be required to report large virtual currency transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and comply with anti-money laundering and anti-terrorist financing obligations
- Platforms would be required to cooperate with the regulators and provide access to data and information as requested
The regulators acknowledge that the proposed framework may not be suitable for all types of Platforms, and that some Platforms may need to seek exemptions or alternative approaches. The regulators also recognize that the crypto-asset sector is evolving rapidly and that the proposed framework may need to be adapted to new developments and innovations.
How to participate in the consultation?
The consultation paper, titled Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms, is available on the websites of the CSA and IIROC. The consultation paper contains 22 questions on various aspects of the proposed framework, such as the scope, the registration and oversight model, the market rules, the investor protection measures, and the international considerations.
The regulators invite comments from all interested parties, including investors, Platforms, service providers, industry associations, and other stakeholders. The deadline for submitting comments is May 15, 2023. Comments can be sent by email or mail to the addresses provided in the consultation paper.
The regulators will review the comments and feedback received and publish a summary of the key themes and responses. The regulators will also use the input to further develop and refine the proposed framework and to determine the next steps for the regulation of Platforms in Canada.
