- Stablecoin firms without written consent from the CSA will be banned from operating in Canada.
- The CSA has stated that algorithm stablecoins and stablecoins with low liquidity will not be granted consent for sales or deposits.
The Canadian Securities Administrators (CSA) have published a list of new requirements for crypto companies in the country. The requirements are mandatory for any crypto company hoping to remain legally compliant and operational.
However, it seems like the new rules do not intend to favor stablecoin platforms. The CSA had earlier announced its ongoing efforts to assess the role of stablecoins in Canada, to identify regulatory implications and risks.
Much like the SEC, the CSA also believes that stablecoins and their arrangements might be viewed as securities and/or derivatives.
According to the new guidelines, crypto platforms will be prohibited from assisting customers in selling or depositing stablecoins or “Value-Referenced Crypto Assets” without prior written consent from the CSA.
To obtain permits, trading companies are required to meet several requirements, including proof of fiat-backed reserves.
“VRCA is a crypto asset that is designed to maintain a stable value over time by referencing the value of a fiat currency or any other value or right, or combination thereof,” the notice stated.
It highlighted the past inconsistencies where crypto assets, touted as stablecoins, were found to be without their peg value (fiat) on trading platforms.
Value-Referenced Crypto Assets Risks
Speaking on the risks of stablecoins, the Canadian regulator considers stablecoin holders easy targets of misinformation regarding the asset and its issuer.
In addition, stablecoins customers may be led to believe the crypto assets are “risk-free,” seeing as they depend on a fixed reference value. Even algorithm stablecoins are no safer.
While the CDA acknowledges their use cases, such as payments and volatility hedging, it also considers them riskier than fiat-backed assets.
“These are generally riskier than other types of VRCAs, as they are typically not collateralized and rely on algorithms and market incentives to peg their price to the reference value,” it added.
The risks associated with VRCAs, the notice pointed out, could impact the financial system as a whole.
Requirements for Stablecoin Platforms
Crypto trading companies are to conduct due diligence to ensure their stablecoins are fiat-backed before requesting written consent from the CSA.
Approval will be denied for algorithm stablecoins as asset reserves must comprise of highly liquid assets like cash or similar values.
In addition, the distribution of fiat-backed stablecoins in Canada must comply with applicable Canadian securities legislation. Trading companies are required to separate stablecoin reserves from the company assets.
Where there is a failure from the trading firm or affiliates, the firm must provide a backup plan to protect customers’ investments.
Stablecoin companies will undergo monthly assessments and annual audits from an independent auditor to establish their asset reserves, with audit reviews made public for customers.
Meta description: The Canadian Securities Administrators (CSA) have prohibited crypto companies from selling stablecoins in the country without prior consent.
Keywords: Stablecoin, CSA.
