anada’s Securities Administrators (CSAs) have issued a new guide that will make many of the country’s cryptovoltaic exchanges subject to national securities laws.
The new guide, published by the CSA, continues in part to build on the regulatory ideas proposed in March 2019. At that time, Canadian regulators said that “if crypto assets, which are securities or derivatives, are traded on a platform, then such a platform would fall under the securities laws”.
In a new notification, Canada’s Securities Administrators stated that such laws “may also apply to platforms that facilitate the purchase and sale of crypto assets, including crypto assets that are commodities, because a user’s contractual right to a crypto asset may itself be a derivative.
Moreover, according to the guidelines, exchanges that control customers’ funds are also subject to these laws, even if they do not exchange assets that may be considered securities or derivatives. Storage exchanges, i.e. trading platforms that do not process or control customers’ funds, are not likely to be subject to the new rules.
“Some platform operators believe that their platforms are not subject to securities legislation as they only allow for transactions with cryptographic assets that are not considered derivatives or securities. However, based on our analysis of how trading happens on platforms, we note that some platforms simply grant their users a contractual right to a underlying crypto asset, rather than delivering it immediately to users. In such cases, after considering all the facts and circumstances, we conclude that these platforms are subject to securities laws,” regulators said.
Cornell University Professor of Law Robert Hockett noted that when a digital asset is not delivered immediately, but is stored on the stock exchange, there is a risk that it will lose value and this will lead to losses for customers. Thus, if exchanges actually offer “the right to own something in the future,” it could expose investors to risk and speculation.
Lawyer Christine Duhaime, who specializes in the cryptographic industry, described this step by the regulators as “a confident move toward consumer protection. She said:
“I think regulators understand how exchanges and wallets work. They want all exchanges that hold client assets for any period of time to operate under securities law, thereby eliminating risks for users in Canada.
Canadian regulators are paying more and more attention to the cryptographic industry. In November, the Securities and Exchange Commission of British Columbia (BCSC) took control of Einstein, the cryptographic exchange, which announced its termination. The problem of lack of regulation of the crypt exchange was exacerbated by the closure of QuadrigaCX, Canada, whose customers lost more than $190 million.