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Canadian securities regulators announce crackdown on unregistered cryptocurrency-trading platforms

AP/Kin Cheung
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Canadian securities regulators are planning to crack down on unregistered cryptocurrency-trading platforms, with the Ontario Securities Commission giving businesses three weeks to comply with its guidelines before it starts taking action.

Monday’s announcements from the OSC, the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada come one week after The Logic reported there are now more than 600 companies that offer cryptocurrency-trading services in Canada that have not registered with securities regulators—although some may not be required to—and at least 11 that haven’t registered with the Financial Transactions and Reports Analysis Centre of Canada. There’s also no evidence any of them have faced penalties from Canadian authorities.

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Talking Point

One week after The Logic reported there are now more than 600 companies that offer cryptocurrency-trading services in Canada that have not registered with securities regulators, Canadian securities regulators have announced plans to start cracking down on the problem. The Ontario Securities Commission is giving businesses three weeks to comply with its guidelines before it starts taking action. The Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada also published a joint notice providing more details on the steps they believe platforms need to take to comply with securities regulations, outlining a process where some platforms may be allowed to operate as restricted dealers while they seek full registration.

The CSA and the IIROC published a joint notice Monday providing more details on the steps they believe platforms need to take to comply with securities regulations. The notice explains the steps for submitting applications to provincial securities regulators and the IIROC, and outlines a process where some platforms may be allowed to operate as restricted dealers while they seek full registration.

In an interview with The Logic, CSA chair Louis Morisset said businesses that don’t cooperate can expect to start facing consequences. Some cryptocurrency-trading platforms believe the CSA’s assertion that it has jurisdiction over the industry wouldn’t stand up in court, but Morisset said he is not concerned.

“If one entity wants to bring it to court, we’ll see them in court,” Morisset said. “We are confident about our position.”

Morisset said regulators would consider enlisting major credit-card providers to block payments to trading platforms headquartered abroad that don’t comply with the CSA’s guidance. Regulators took this action against binary options providers that continued to sell the investment products to Canadians after the CSA banned them in 2017.

“It’s a challenge to enforce when it’s abroad … but we faced it with respect to binary options,” Morisset said. “We’ve got a lot of intelligence on how to deal with that.”

The 11 businesses The Logic identified as operating in Canada without registering with either FINTRAC or securities regulators are all foreign businesses. They include Binance, the world’s biggest cryptocurrency exchange, and Blockchain.com, which raised US$300 million at a US$5.2-billion valuation last week.

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With investor interest in cryptocurrencies growing thanks to their boom in price and increasing integration with the mainstream financial system, the business of enabling Canadians to exchange their dollars for bitcoins has been booming as well. Since The Logic published its story last Monday on the explosion of cryptocurrency-trading businesses in Canada, 12 new businesses have registered with FINTRAC as dealing in virtual currencies, bringing the total to 646.

FINTRAC and the CSA both asserted jurisdiction over the industry in 2020. The CSA released guidance that January stating that while popular cryptocurrencies like Bitcoin and Ether are not themselves securities, the contracts many trading platforms enter into with customers are—meaning exchanges that enter into such contracts must register as securities dealers. However, Toronto-based online wealth-management company Wealthsimple is the only such business that has completed its registration to date.

Morisset said there are 10 to 20 cryptocurrency-trading businesses currently in the process of getting registered through the CSA’s sandbox program. The CSA has also counselled many businesses that have come forward that their operations don’t fall under the jurisdiction of securities regulators, he said.

Matthew Burgoyne, head of the cryptocurrency and blockchain group at McLeod Law in Calgary, said the CSA is striking a balance between flexibility and toughness with its new guidance. The regulator’s thoroughness will make it more difficult for businesses to argue they’re not covered or don’t know what steps they’re supposed to take to comply, he said.

“There’s no more grey area,” said Burgoyne. “This provides a pretty clear roadmap on what to do now.”