Canada Tightens Requirements for Crypto Trading and Prohibits Stablecoins
The country’s watchdog issued tighter requirements that crypto asset trading platforms (CTPs) must fulfill when seeking registration in the country. The Canadian Securities Administrators (CSA) explained the second issuance of tighter requirements arises from the contagion disorder witnessed in 2022. The CSA cited the recent implosion of Celsius Network, Genesis Global, FTX, BlockFi and Voyager Digital.
Updated Requirements of Preregistration Undertaking
The notice published on February 22 directs all CTPs applying for registration in Canada to embrace the updated version of preregistration undertakings (PRUs). The CSA considers such PRU to constitute a legally binding document. The notice is the second update reinforcing the earlier version issued in August 2022.
CSA serves as the umbrella entity of Canadian provincial regulators. The notice directs that the principal regulators would contact the registered CTPs informing them of their compliance level relative to the new expectations.
Prioritizing Investor Safeguards
The CSA outlined that the new commitments prioritize investor safeguards as necessary, given the spiked rate of insolvencies witnessed in 2022. CSA observes that CTPs must segregate assets, exercise transparency, observe leverage and ascertain their capital.
CSA notice gave more coverage to prohibit CTP from facilitating clients to purchase or deposit the value-referenced crypto assets (VRCA). The directive directs CTPs to seek the written consent of the Canadian Securities Administrator before offering stablecoins under crypto contracts.
The notice restated CSA’s devotion to monitoring the continued presence of stablecoins and their pertinent role within the Canadian capital markets. The fulfillment of the oversight responsibility mandates CSA to collaborate with other regulatory agencies in identifying and addressing implications and inherent risks.
The notice recognizes that stablecoins regulations involve a work in progress since such arrangements harbor securities or derivatives characteristics. CSA’s notice prohibits CTPs from allowing their Canadian clients to execute crypto purchase and sale contracts, whether as security or derivatives.
Exceptions to Recognize Value-referenced Crypto Assets (VRCA)
The notice captured the perspective of CSA executives, emphasizing that fiat-backed cryptos satisfy the definition of security and derivatives across several jurisdictions. CSA clarified that it would not provide consent in contracts involving algorithmic stablecoins.
CSA acknowledged that it would consider exceptions to recognize VRCAs could serve as the on-ramp to facilitate assets’ deposits to the trading platforms. Also, the exception of VRCA could arise when utilized to trade for other cryptos, store value during periods of volatility, and finalize payment. The notice considers that CSA except VRCAs when parties involved seek to avoid conversion of cryptos into fiat currency when settling payments.
The release of the second update by CSA coincides with the revelation of Toronto-based Coinsquare as a registered CTP confirmed issuing USD Coin (USDC) and Dai (DAI) stablecoins in its offering of 40 cryptos.
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