One month before FTX’s spectacular collapse, Canadian cryptocurrency-trading platforms met with securities regulators and pushed them to ramp up their efforts to rein in international crypto businesses that, like FTX, were operating in Canada without registration.

Representatives from Canadian crypto platforms met with staff from various securities regulators in early October, seven people with knowledge of the meeting told The Logic. Wealthsimple and WonderFi, which owns the platforms Bitbuy and Coinberry, were among the companies represented on the Zoom call, according to a source; the companies declined to comment on the meeting. The Canadian Securities Administrators confirmed they attended the meeting, and staff from the Ontario Securities Commission and the Investment Industry Regulatory Organization of Canada were also present, according to a source. The Logic is not naming some sources in this story because the matters discussed at the meeting are the subject of ongoing negotiations.

The domestic crypto platforms attending the meeting were part of an industry working group organized to advocate for a single set of easy-to-navigate guidelines for the sector, and for stricter enforcement against companies that aren’t following the rules. They argue it’s unfair that they have shouldered the cost and accepted the restrictions that come with complying with regulation, while their larger, richer, unregistered international competitors continue to accept Canadian customers without penalty.

Just a few weeks after the meeting, one such large, unregistered offshore crypto platform—FTX—imploded, stoking fears of contagion that could take down more companies in the sector. FTX customers—which may include roughly 50,000 Canadians, according to an Ipsos survey the Ontario Securities Commission commissioned in September—have little hope of recovering their funds in bankruptcy proceedings.

In an interview with The Logic, Pamela Draper, chief executive of the Calgary-based cryptocurrency-trading platform Bitvo—which recently pulled out of an agreement to be acquired by FTX, a deal signed before the Bahamas-based crypto-trading firm collapsed—said the lack of enforcement has created perverse incentives. Customers are gravitating to unregistered platforms like FTX that are able to offer more services with fewer restrictions than their registered Canadian counterparts, she said.

“We’ve done what we were supposed to do. We held up our end of the bargain, and now we’re being punished for it,” she said. “And not only are we being punished, but Canadian consumers are still at the same risk.”

FTX is one of several foreign crypto-trading platforms that in 2021 placed restrictions on users from Ontario, as well as Quebec in some cases, but not the rest of Canada. The restrictions followed a crackdown by securities regulators in the spring of that year. The Ontario Securities Commission gave all platforms operating in Canada a deadline to start the process of registering or face enforcement action.

Dustin Walper, chief executive of the Toronto-based cryptocurrency-trading platform Newton, said it’s high time for Canada’s regulators to follow through on that threat in a more comprehensive manner. “They need to be brought into compliance with the rest of us. Immediately,” he said.

The OSC has led the way in making efforts to bring offshore platforms into compliance through enforcement, levying cease-trade orders and fines against four platforms since the 2021 crackdown. Two of those platforms—Seychelles-based OKX and British Virgin Islands-based Bybit—paid their fines and entered into undertakings to restrict Ontario users as ordered.

The other two—Seychelles-based Poloniex and KuCoin, which is controlled by two companies based in the Seychelles and Singapore—did not appear at the OSC’s hearings. Poloniex now restricts Ontario users from its platform, while KuCoin does not list any such restriction on its website. In an email, Emma Hou, a spokesperson for KuCoin, said the platform “takes all possible measures to respect local regulatory laws in the countries it operates,” but did not provide evidence KuCoin had taken steps to restrict Ontario users.

The British Columbia Securities Commission’s enforcement action against Cayman Islands-based LiquiTrade on Nov. 16 is the only such action by a securities regulator outside Ontario to date, a spokesperson for the BCSC confirmed. 

Brian Kladko, a spokesperson for the BCSC, and Theresa Schroder, a spokesperson for the Alberta Securities Commission, both said discussions about enforcement are confidential and questions about coordinating the registration of platforms should be directed to the CSA. “We are seeking to transition willing unregistered platforms to a regulatory environment as quickly as is feasible given the challenges,” Schroder said. The Ontario Securities Commission and Quebec’s Autorité des Marchés Financiers did not respond to requests for comment.

Adam Cai, chief executive of the Toronto-based cryptocurrency trading platform VirgoCX, said the uneven enforcement of unregistered crypto-trading platforms across the country is a problem. “That push for regulators to do more enforcement that’s Canada-wide, not only Ontario, is 100 per cent needed.” 

Canada’s securities regulators face well-known challenges when it comes to following through on their enforcement actions, especially against companies headquartered outside the country. A December 2021 report by Ontario’s auditor general found the OSC has only collected 28 per cent, or $145 million, of the $525 million it has imposed in fines over the past 10 years.

In an interview with The Logic in 2021, shortly after Canada’s securities regulators announced their crackdown, then-CSA chair Louis Morisset acknowledged “it’s a challenge to enforce when it’s abroad,” but said regulators would consider enlisting major credit-card providers to block payments to offshore trading platforms that don’t comply. CSA spokesperson Ilana Kelemen did not address whether regulators are still considering that measure in an emailed response.

In August, the CSA said crypto platforms seeking registration in Canada must provide a pre-registration undertaking to continue to operate in the country while regulators review their applications. To date, Singapore-based Crypto.com is the only platform headquartered outside Canada to submit such an undertaking.

Binance, Coinbase and other major international crypto platforms continue to offer their services to Canadian users outside Ontario. In fact, Coinbase is the most popular crypto platform in the country, used by 42 per cent of Canadian crypto holders, while Binance is the third most popular, with 31 per cent of Canadians who own crypto using it, according to the OSC’s survey.

A spokesperson for Coinbase, which has incorporated a subsidiary in Canada and has previously said it is working with regulators, acknowledged receipt of a request for comment, but did not provide a response. Bryan Tritt, a spokesperson for Binance—which signed a legal commitment with the OSC in March to cease trading in Ontario after a spat with the regulator over the holiday season last year—said it has submitted its pre-registration undertaking to the Alberta Securities Commission and the CSA, and is in the process of finalizing it. “​​Binance Canada is strongly committed to meeting or exceeding all regulatory requirements of the CSA as well as on our (IIROC) regulatory application,” Tritt said.

Katrina Prokopy, chief legal officer and head of regulatory affairs at the Toronto-based cryptocurrency-trading platform Coinsquare, said the pre-registration undertaking requirement may not be having the intended effect, since so few platforms have signed them. 

“My question is, where are they?” she said. “Are they just creating another step that’s taking just as long?”

Matthew Burgoyne, a lawyer at Osler, Hoskin & Harcourt in Calgary who represents some of the international platforms seeking registration in Canada, said many have submitted draft undertakings and are meeting their deadlines. The process of satisfying everything the regulators are looking for and liaising with them takes time, he said. “The terms of the undertaking are being negotiated. And that takes a while.”