IIROC, CSA serve notice to crypto-trading platforms

By James Langton | March 29, 2021 | Last updated on March 29, 2021
3 min read
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Most crypto-trading platforms that deal with Canadian investors will have to register and join the Investment Industry Regulatory Organization of Canada (IIROC) under new regulatory guidance issued Monday.

In a joint notice, IIROC and the Canadian Securities Administrators (CSA) set out their approach to overseeing Canada’s fledgling crypto-trading business.

That approach doesn’t mandate a strict one-size-fits-all registration requirement. Instead, the regulators provided guidance on how firms that offer crypto trading can comply with existing rules: based on their operations, firms may face additional conditions on their registration or they may seek exemptions from existing requirements.

The guidance sets out the regulators’ approach to businesses that are considered “dealer” platforms, those considered “marketplaces,” and those that are hybrids (such as marketplaces that perform some dealer functions). It also addresses whether platforms allow trading in cryptoassets that are considered securities or derivatives, or are contractual rights to underlying cryptoassets.

“This notice does not introduce new rules specifically applicable to [crypto-trading platforms],” the regulators said, adding that they consider crypto platforms to be “already subject to existing requirements under securities legislation in Canada.”

The notice also signals a divergent approach to regulating crypto in Canada along geographic lines, at least during the transition from Monday’s guidance to crypto firms actually coming into compliance with the regulators’ expectations.

According to the notice, platforms operating in Ontario, Quebec, Nova Scotia and New Brunswick will be expected to start the registration process with IIROC during an interim transition period towards full compliance with the regulators’ expectations. Regulators in Alberta, British Columbia, Manitoba and Saskatchewan “will consider other regulatory approaches during the interim period,” it said.

The interim approach is intended to allow firms to continue operating while starting to bring their businesses in line with the new guidance.

“Under this interim approach [platforms] that trade crypto contracts will be subject to terms and conditions that will be tailored to their business model, as appropriate, and that will address key risks to clients,” the notice said.

On Monday the Ontario Securities Commission demanded that crypto-trading platforms contact the regulator by April 19 to discuss their plans for compliance.

“The guidance in our notice details steps platform operators need to take to comply with securities legislation as they prepare to fully integrate into the Canadian regulatory structure,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a release.

“To bring their operations into compliance, [crypto platforms] should contact their local securities regulator now to discuss the registration process and address applicable requirements,” he added.

The regulators stressed that the overall goal of their approach “is to ensure there is a balance between needing to be flexible in order to foster innovation in the Canadian capital markets and meeting our regulatory mandate of promoting investor protection and fair and efficient capital markets.”

Separately, IIROC also announced the new membership of its cryptoasset working group, which will provide the regulator with input on the ongoing development of oversight in this area.

The new group includes crypto industry experts, legal and compliance professionals, academics and others.

“We must continue to rethink the way we regulate in order to support innovation — all while ensuring investors are protected. With this new group of diverse members, IIROC will continue its work assessing how our regulatory requirements might be best tailored for crypto-assets,” said Victoria Pinnington, IIROC’s senior vice-president, market regulation, and chair of the working group, in a release.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.