Following widespread media coverage of the collapse of the QuadrigaCX digital currency exchange, Canadian regulators are asking for feedback on how to regulate platforms for the purchase, sale and transfer of crypto assets. In their consultation paper the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada propose a regulatory framework and ask stakeholders how securities law should apply to crypto platforms. Given the increasing prevalence of digital assets including cryptocurrencies, regulation of crypto platforms may have increasing impact on the business of banking in Canada in the future. This regulatory development should be on the radar of financial institutions as well as players in the digital asset space.
The consultation paper asks for input to:
- Identify best practices by platforms and by regulators in other jurisdictions to minimize the novel risks raised by crypto trading.
- Identify factors regulators should consider in deciding whether trading on a platform is subject to securities laws.
- Decide how platforms should be required to verify that participants' crypto assets exist and are securely held.
- Identify factors to be used to determine a fair price for crypto assets, and how regulators should evaluate determinations of price by platforms.
- Address the challenges in conducting market surveillance of crypto assets, given they trade globally, on and off platforms, and outside trading hours – which market integrity requirements should apply to crypto platforms, and should they be allowed to self-regulate?
- Decide if and when platforms should be exempt from independent systems review requirements.
- Consider how platforms should manage conflicts of interest and disclosure given they may provide advice to participants on crypto assets that are also available to trade on their platforms, and they may engage in proprietary trading.
- Consider what insurance platforms should be required to obtain – they often hold their participants' assets, which are targets for cyber-attacks and theft.
- Decide whether to exempt platforms from the requirement to report and settle trades through a clearing agency.
Written submissions should be sent to IIROC and all members of the CSA by May 15th, 2019.