New investor protection rules are severely restricting the cryptocurrency industry in Canada. The reason for this is enormous losses for investors, among other things due to the many fires after the FTX collapse, as well as rampant fraud and money laundering. The umbrella organization of the Canadian capital market authorities CSA (Canadian Securities Association) requires that all providers (crypto asset trading platforms, CTPs) register, meet extensive conditions and restrict offers and advertising. Remaining providers must be financially strong, with the value of cryptocurrencies held by the provider being considered zero.
“This provision is based on the fact that most crypto assets are speculative in nature and that their value is highly volatile. As a new class of assets, crypto assets have limited investment history which indicates that they may lose substantial, if not all, their value in a very short period“, explain the CSA.
Crypto bets on credit, margin or other forms of leverage are generally prohibited, even for foreign customers; Exceptions are made for certain entities, including financial institutions, pension and mutual funds, government agencies, charities, and individuals with net worth of more than $5 million.
Stablecoins always suspect
Canadian authorities keep a keen eye on so-called stablecoins – these are virtual coins that are said to have stable exchange rates in a real currency. Even the suggestive term stablecoin annoys the authorities. They prefer to call the kid “Value-Referenced Crypto Assets” (VRCA). Trading VRCA that is not fully backed by real, liquid cash reserves is completely prohibited. This applies, for example, to “algorithmically secured” stablecoins such as Luna.
Having real money backing throughout, and managing it separately by certain independent entities, does not mean that trading in such a stablecoin would be allowed: the platform operator then only has the opportunity to apply for permission to trade. Not only the trading platform, but also the issuer of the stablecoin should participate in the approval process. And anyway, so the explicit warning, regulations and any permits are only provisional and could change or be revoked at any time
Securities only with permission
In principle, trading in so-called securities (imprecisely translated as “securities”) requires approval. The umbrella organization of the Canadian financial supervisory authorities CSA could not or did not want to explain exactly what securities are, even when asked heise online. Assessing this is explicitly a risk that the CTPs will have to take. US authorities such as the SEC (Securities Exchange Commission) and the New York Attorney’s Office classify classic cryptocurrencies as security, the CTFC (Commodity Futures Trading Commission) as differently regulated commodities (commercial goods).
Various official documents show what, in addition to classic securities, is considered securities: Most stablecoins, all new issues of cryptocurrencies (Initial Coin Offers, ICO), staking of cryptocurrencies, all virtual things that promise a share of a hoped-for return or value (e.g., tokenized valuables, real estate, businesses, securities, etc.), agreements on the future allocation of virtual coins, virtual coins allocated as rewards for advertising, virtual coins issued in limited quantities, virtual coins advertised as a means of payment but not yet widely accepted, as presumably increasing-valued coins, and so on—in other words, pretty much anything that might somehow represent value or hope for value appreciation. Even the form of promotion can make the difference, for example if a token can theoretically be used for a specific service, but this is only available abroad, but the token is advertised in Canada – because then speculation on value appreciation would be in the foreground. And of course all derivatives of securities.
The crypto platforms may issue their own virtual coins and trade their own virtual coins or virtual coins issued by partners only with prior approval. Here, too, the competent Canadian authorities want to keep the lid on it. Which of the 13 Canadian authorities is responsible depends on the location of the provider; in Canada, each province and territory has its own financial regulator.
Registration obligation with many conditions
In principle, all CTPs must register there. Those who have not already done so have until the end of the week to apply, otherwise they will have to cancel all Canadian customers. Providers who submit the application in good time and participate prosperously in the process may continue to work, but must immediately meet the conditions for providers who are already registered. Only crypto.com is currently at this stage. Its operator submitted an application in August and will probably have to revise it in view of the stricter rules.
One of the requirements is that customer deposits are managed separately and not used for any of their own purposes. The platform operator must hand over at least 80 percent of customer deposits to a qualified trustee. Only Canadian financial institutions, one of two dozen other clearing banks in other countries and other custodian banks that meet the requirements for Canadian investment funds or another institution that has been expressly approved in individual cases are qualified.
Recommended Editorial Content
With your consent, an external survey (Opinary GmbH) will be loaded here.
Always load polls
The Canadian branch of each crypto platform must make relevant decisions independently, disclose financial details, risks and conflicts of interest on a regular basis, demonstrate qualifications and experience, have a qualified chief compliance officer and extensive compliance controls, have sufficient financial reserves – not counting crypto coins -, be insured, maintain a kind of banking secrecy and make sure that all information in advertising and in social networks is fair, balanced and not misleading. Advice or recommendations for customers are prohibited.
Maximum 20,000 euros per year
There are also maximum amounts that CPTs may accept from Canadians. Here is the one still granted under the old rules Coinbase operating license a foretaste: private customers may risk a maximum of 30,000 Canadian dollars (a good 20,000 euros) in twelve months, provided they are not millionaires with high incomes. The only exceptions to these restrictions were the purchase of four cryptocurrencies: Bitcoin, Bitcoin Cash, Ether and Litecoin.
“We remind investors that trading in crypto assets comes with elevated levels of risk that may not be suitable for many investors, in particular retail investors. Generally speaking, purchasing crypto assets is a speculative activity and the value and liquidity of crypto assets are highly volatile. Unregistered CTPs accessible by Canadians may not have essential safeguards that help protect investors’ assets from loss, theft or misuse“Warn the Canadian authorities.
The effects
The details of how all this will play out are still open. Roughly speaking, it is clear that the effort and costs for CTPs are rising sharply while the revenue opportunities are declining at the same time. The lucrative use of customer deposits for one’s own purposes is also eliminated.
This means that the business should only pay off for a few large providers, if at all. Fees and administrative burdens are also likely to increase for crypto gamblers, which should put some off. And that’s certainly not an unwanted side effect of Canadian regulation.
also read
(ds)
