Crypto-trading platform Coinberry is the latest firm to receive regulatory relief from the Ontario Securities Commission (OSC) while it continues its bid to get approval to operate as a regulated dealer.
The OSC issued a decision granting the firm relief from prospectus and trade reporting requirements for two years, allowing it to trade crypto contracts with investors and operate a crypto-trading platform.
The relief was granted to allow the firm to operate while simultaneously seeking registration as an investment dealer. Coinberry wants to join the Investment Industry Regulatory Organization of Canada (IIROC).
The decision comes as part of the Canadian Securities Administrators’ (CSA) approach to regulating the fledgling crypto space, which includes granting temporary relief designed to “foster innovation and respond to novel circumstances,” while also allowing firms to operate under requirements tailored to their specific circumstances.
“The overall goal of the regulatory framework is to ensure there is a balance between the need to be flexible and facilitate innovation in the Canadian capital markets, while upholding the regulatory mandate of promoting investor protection and fair and efficient capital markets,” the OSC decision noted.
Under the relief granted to Coinberry — which is specific to the firm and doesn’t create a precedent for other crypto firms — the OSC imposed a variety of conditions on the firm, including investment limits for certain clients, disclosure requirements and certain reporting conditions.
According to the decision, the firm’s clients are segmented into “accredited” crypto investors, “eligible” crypto investors and others.
While there are no limits for certain cryptos (Bitcoin, Bitcoin cash, Ether and Litecoin), the decision sets limits for other kinds of crypto such as Dogecoin; and the regulator’s decision explicitly prohibits trading in Tether.
For all other cryptocurrencies, the firm’s clients that don’t qualify as either “accredited” or “eligible” are limited to buying $30,000-worth.
“Eligible” crypto investors at the firm are limited to acquiring $100,000-worth of non-specified crypto. These investors are defined in the decision as having $400,000 in assets, an income of $75,000 (and $125,000 with a spouse).
There are no investment limits on so-called “accredited” crypto investors, defined as clients with $1 million in financial assets (including crypto), annual pre-tax net income of $200,000 (and $300,000 with a spouse), or $5 million in total assets.
In addition to the investment limits, Coinberry will be required to provide clients with risk statements and educational materials on crypto assets. The firm will also have to assess the suitability of trades and monitor clients’ trading activity for signs of ill-informed trading.
The firm can’t charge commissions on client trading; instead, it can generate revenues on the spread between the prices that it gets for assets from liquidity providers and the prices at which it transacts with its clients.
The OSC decision noted that Coinberry will hold limited amounts of crypto in its own “hot” and “cold” wallets, to “facilitate client deposit and withdrawal requests.” However, most of clients’ assets will be held at a third-party custodian, New York-based the Gemini Trust Company, LLC. The firm also has insurance to cover the assets in its cold storage wallets.
Separately, the OSC also continues to bring enforcement action against crypto-platforms that aren’t heeding its warning earlier this year to start seeking registration.
On Aug. 19, the regulator filed its fourth case against an offshore crypto firm — the Seychelles-based Aux Cayes Fintech Co. Ltd. — for allegedly operating an unregistered crypto-trading platform, the OKEx Platform.
The OSC said that despite its warning to the crypto industry, which gave them until April 19 to contact regulators to discuss how to bring their operations into compliance, “Aux Cayes did not contact the OSC to initiate compliance discussions.”
The allegations have not been proven.
The OSC said that its staff will continue to take action against non-compliant crypto trading platforms, and that they are “in contact with international securities regulators to exchange information to support enforcement action.”