- The Canadian Securities Administrators (CSA) banned crypto firms from engaging with Canadian clients.
- The CSA introduced an extended regulation that requires crypto firms to register or partake in a pre-registration undertaking.
- Canada cites FTX as a lesson to be learned as it clamps down on crypto activities in the country.
A month after the unexpected crash of FTX, one of the world’s largest cryptocurrency exchange companies, laws are being made to protect and prevent Canadian citizens from being exposed to severe financial loss due to an inadequate and inefficient crypto firm.
Due to the adverse effects of the now-bankrupt FTX on the crypto market, Canadian Securities Administrators (CSA), an umbrella union of Canada’s 13 provincial and territorial watchdogs, announced that crypto companies would be restricted from extending margin or leverage to Canadian residents.
The CSA had mandated that even foreign firms which provided services to Canadians were not exempted from the newly added laws as they would also be regarded as operating within the country for the reasons of securities regulations.
The Canadian Securities Administrators had declared that all crypto trading firms pursuing registration must sign undertakings. The pre-registration undertaking (PRU) comprises an agreement that any crypto firm must hold Canadian clients’ assets with an adequate custodian. These assets would be separated from the platform’s initial proprietary business.
“Custodians will generally be considered qualified if they are regulated by a financial regulator in Canada, USA, or a related jurisdiction with a supervisory regime for conduct and financial regulation,” CSA mentioned in a statement.
The CSA stressed that should a pre-registration undertaking not be submitted to the Canadian regulators before the deadline, which is yet to be announced, or any affected crypto firm had not stopped operations in Canada, there would be legal actions taken against such firms with the consideration of law enforcement action.
In a statement made on December 12, the CSA indicated that crypto assets and financial derivatives had always been high-risk investments, even with the mandatory pre-registration undertaking and expanded regulations across the country.
“These risks could come from, among other things, crypto trading platforms’ non-compliance with registration requirements or undertakings, interconnectedness within the crypto industry, price volatility, hacks, insolvency, and uncertain value propositions for individual assets,” CSA said.
The Canadian Securities Administrators had taken this opportunity to advise cryptocurrency investors to exercise vigilance and consider asking for advice from a certified investment advisor before planning to delve into the crypto market. The regulatory body also said that people planning to invest should ensure that the platform is registered with a provincial and territorial securities regulator.
The Canadian government had always been wary of the crypto industry and skeptical of cryptocurrencies. The Prime Minister of Canada, Justin Trudeau, had spoken against people promoting “questionable, reckless economic ideas” involving crypto. He had mentioned that Bitcoin and other tokens were no proper way to escape inflation.
Earlier in 2022, the Canadian government had extended its anti-terrorism legislation to restrict Bitcoin contributions to a protest against Covid restrictions called “Freedom Convoy.” However, the securities regulatory body had actively warned unlisted companies, calling out big firms like Binance and KuCoin, who refused authorization.
Instead, Binance, the world’s largest crypto exchange company by volume, had previously announced in 2021 that it would be withdrawing its services from Ontario rather than following through with the requirements to register with provincial regulators. However, it later alerted its users that it had been allowed to resume its operations in Ontario.
The CSA identifies Stablecoins as Securities or Derivatives.
In light of the recent events in the crypto industry due to the mismanagement of Sam Bankman-Fried’s crypto exchange platform, FTX, the Canadian Securities Administrators (CSA) had decided that they would directly reach out to registered crypto firms to discuss the new regulations as they set a deadline for the unlisted companies.
However, the CSA was worried about the circulation of stablecoins as the regulatory body identified stablecoins as “securities and derivatives.”
The CSA had announced in their statement that crypto trading platforms that either registered or had initiated their pre-registration undertaking (PRU) were reminded that they were banned from enabling Canadian clients to purchase or acquire exposure to crypto assets that would in itself be security or derivative.
Hence, the crypto platforms were to examine all mentioned digital assets to determine their users’ exposure to a security or derivative.
Conclusion
The Canadian Securities Administrators (CSA) had taken in the ugly aftereffects of the now-bankrupt FTX company in the crypto market and introduced its expanded regulations, requiring crypto firms to partake in registration with a regulatory body or cease to operate in its country.
