Enforcement ramps up as crypto asset trading platforms proliferate
INSIGHT ARTICLE |
The continuing evolution of the fintech sector and the relevant infrastructure in Canada, especially crypto-assets, has resulted in the proliferation of crypto-asset trading platforms (CTPs) which allow Canadian investors to access this revolutionary asset class.
The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) recently published a staff notice outlining securities law requirements that apply to CTPs with particular focus in the trading of crypto-assets that are securities (i.e., security tokens), instruments or contracts involving crypto-assets (i.e., crypto-contracts). However, according to an Ontario Securities Commission press release, some firms have not responded to calls to get registered. The regulator has since cranked up its enforcement by filing cases against erring crypto firms.
This regulatory framework mainly applies to all CTPs, both dealer and marketplace platforms, dealing with Canadian investors including those based outside of Canada.
The dealer platforms include but are not limited to those entities that offer any of the following services:
- Facilitates distribution of security tokens
- Acts as an agent for clients trading security tokens or crypto-contracts
- Provides services such as onboarding of retail clients onto the CTP
- Offers custody of assets, either directly or through a third-party provider
A marketplace platform is one that performs any of the following services:
- Provides a market or facility for bringing together multiple buyers and sellers or parties to trade in security tokens and/or crypto-contracts
- Brings together orders of security tokens and/or crypto-contracts of multiple buyers and sellers or parties of the contracts
- Uses established, non-discretionary methods under which orders for security tokens and/or crypto-contracts interact with each other, and the buyers and sellers or parties entering the
orders agree to the terms of the trade
- Performs traditional dealer functions such as holding assets and other functions
While CTPs are already subject to existing requirements under securities legislation in Canada, the notice provides clarity including an interim approach and flexibility in complying with the requirements on certain areas provided all key risks are addressed such as:
- Safeguarding investor assets where a dealer platform or marketplace platform has custody
- Access to marketplace platforms
- System resiliency, integrity and security controls
- Transparency about the CTP’s operations and the crypto-assets traded on the CTP
- Market integrity and price discovery
- Direct access by retail investors
- Conflicts of interest
As of April 2021, all CTPs that perform any of the services outlined above are expected to contact their local securities regulator to assess their level of compliance with these regulations. The registration categories (e.g., exempt market dealer, investment dealer, IIROC broker dealer, derivatives dealer, exchange, alternative trading systems), the applicable interim regulatory approach and the application process are generally dependent on the nature of activities and operation and the type of platform (i.e., dealer or marketplace platform).
Navigating regulatory requirements is not easy. That is why we are here to help. RSM Canada LLP has an integrated team of audit, tax and consulting professionals committed to serving the crypto-assets industry.
RSM Canada LLP is an IIROC approved panel auditor and provides services to various registrants (e.g., exempt market dealers, fund managers, portfolio managers, investment dealers, etc.) in Canada. To learn about how we can help, get in touch with us.