CSA Tightens Clamp on Crypto Companies in Canada

Last year was an interesting one for cryptocurrency in Canada and around the world.

A downturned market has spurred potential consolidation efforts while financial scandals have prompted the Canadian Securities Administrators to warn investors that trading in crypto assets comes “with elevated levels of risk that may not be suitable for many investors, in particular retail investors.”

The CSA has noted that, generally speaking, “trading crypto assets is a speculative activity, and the value and liquidity of crypto assets are highly volatile.”

“Crypto asset trading platforms that operate in Canada and trade securities or derivatives are required to comply with Canadian securities law requirements, including registering with securities regulators,” CSA explained last year. “This regulatory oversight plays an important role in investor protection.”

Furthering an update in December, the CSA this week published a notice describing enhanced investor protection commitments it expects from crypto asset trading platforms operating in Canada.

“Recent insolvencies involving several crypto asset trading platforms highlight the tremendous risks associated with trading crypto assets, particularly when conducted on unregistered platforms based outside of Canada,” stated Stan Magidson, CSA Chair and CEO of the Alberta Securities Commission.

These commitments are made in the form of an enhanced pre-registration undertaking, which will include higher “expectations regarding the custody and segregation of crypto assets held on behalf of Canadian clients and a prohibition on offering margin, credit, or other forms of leverage to any Canadian client.”

They will also prohibit crypto asset trading platforms from permitting clients to purchase or deposit value-referenced crypto assets—commonly referred to as “stablecoins”—and proprietary tokens without the prior written consent of the CSA.

If a CTP is unable or unwilling to provide an enhanced pre-registration undertaking, it must “off-board existing Canadian users and impose restrictions to prevent Canadian users from accessing its products or services,” according to a statement from the CSA.

Canada remains a hotspot for crypto activity, with many companies in the space.