[Canada] New crypto rules compel trading platforms to comply or leave

Recent efforts in Canada to impose stricter rules on crypto companies demonstrate that US regulators have allies in cracking down on the asset class following well-publicised turmoil in 2022, Yahoo Finance reports.

In February, Canadian securities regulators gave a 30-day deadline for unregistered crypto trading platforms operating in the country to commit to a so-called pre-registration undertaking. Under it, firms are required to follow tougher regulations on segregating customer assets and are prohibited from offering margin or leverage to users in Canada.

The new rules are forcing companies in the industry to make tough choices about whether to comply and stay in the country or pull out. Some firms — including Coinbase Global Inc. and Binance — have reportedly indicated that they intend to pursue registrations. Others, such as stablecoin issuer Paxos and decentralised exchange dYdX, however, have decided instead to wind up their Canadian operations.

The Canadian Securities Administrators previewed the guidance in December following the collapse of FTX, citing it as illustrative of the need for stronger oversight of the industry. Crypto platforms that are “unable or unwilling” to follow the new process should stop Canadian users from accessing their services, the regulators said.

“It’s a reaction to recent events and lessons learned from those events,” Matthew Burgoyne - a Calgary-based attorney for the law firm Osler, Hoskin & Harcourt LLP - said.

The move comes during a separate US crackdown on the industry, in particular through increased enforcement by the Securities and Exchange Commission and other bodies. On April 14, the SEC altered a proposed rule to make it more explicit that digital-asset exchanges and decentralised-finance platforms must register with the regulator. And it has reportedly proposed rules that would make it harder for crypto platforms to hold digital assets owned by clients of hedge funds and private equity firms.

The agency has been criticised by the industry and some US lawmakers who say the SEC has relied too much on enforcement and hasn’t done enough to provide clear guidance on registration and how securities rules apply to crypto trading platforms.

Canada has already taken those steps. The country first proposed a broad framework for platforms in 2019, which was followed up by a 2021 notice from the CSA and the Investment Industry Regulatory Organization of Canada outlining how securities law applies to the business.

Remain or Leave?

Some crypto firms have reportedly decided to exit the Canadian market, while others announced plans to pursue registration.

Paxos is poised to leave Canada and shut down accounts in the country, according to its website. DYdX began winding down services in the country earlier this month, moving all existing users to close-only mode, according to a company blog.

In a statement to Bloomberg, Paxos said, “While our platform will no longer support Canadian customers in the immediate term, we will reassess our presence in this region in partnership with our clients’ evolving needs.”

“The CSA is committed to ensuring that market participants in Canada are protected when trading securities or derivatives, and that Canada’s capital markets remain fair, efficient and innovative,” Ilana Kelemen - a spokeswoman for the regulators’ group - said in an emailed statement.

Other firms are reaffirming their commitment to Canada. Coinbase, Binance, Kraken and Gemini reportedly number among the firms that have announced in recent weeks their filing of a “pre-registration undertaking” in Canada. 

Coinbase said it hired a country director and has over 200 Canadian engineers. Gemini said it is a sub-custodian to many Canadian crypto ETFs.

Binance’s Canadian affiliate reportedly said its paperwork - filed on behalf of itself, Binance Holdings Ltd. and founder Changpeng Zhao - outlines how it intends to operate, including its management and custody of user assets.

At present, only a handful of crypto trading platforms - including Fidelity Digital Assets Services and Bitvo Inc. - have been authorised to do business in Canada, according to CSA’s website. KuCoin and Poloniex have been banned in the country.

Source: Yahoo Finance

(Quotes via original reporting)

Recent efforts in Canada to impose stricter rules on crypto companies demonstrate that US regulators have allies in cracking down on the asset class following well-publicised turmoil in 2022, Yahoo Finance reports.

In February, Canadian securities regulators gave a 30-day deadline for unregistered crypto trading platforms operating in the country to commit to a so-called pre-registration undertaking. Under it, firms are required to follow tougher regulations on segregating customer assets and are prohibited from offering margin or leverage to users in Canada.

The new rules are forcing companies in the industry to make tough choices about whether to comply and stay in the country or pull out. Some firms — including Coinbase Global Inc. and Binance — have reportedly indicated that they intend to pursue registrations. Others, such as stablecoin issuer Paxos and decentralised exchange dYdX, however, have decided instead to wind up their Canadian operations.

The Canadian Securities Administrators previewed the guidance in December following the collapse of FTX, citing it as illustrative of the need for stronger oversight of the industry. Crypto platforms that are “unable or unwilling” to follow the new process should stop Canadian users from accessing their services, the regulators said.

“It’s a reaction to recent events and lessons learned from those events,” Matthew Burgoyne - a Calgary-based attorney for the law firm Osler, Hoskin & Harcourt LLP - said.

The move comes during a separate US crackdown on the industry, in particular through increased enforcement by the Securities and Exchange Commission and other bodies. On April 14, the SEC altered a proposed rule to make it more explicit that digital-asset exchanges and decentralised-finance platforms must register with the regulator. And it has reportedly proposed rules that would make it harder for crypto platforms to hold digital assets owned by clients of hedge funds and private equity firms.

The agency has been criticised by the industry and some US lawmakers who say the SEC has relied too much on enforcement and hasn’t done enough to provide clear guidance on registration and how securities rules apply to crypto trading platforms.

Canada has already taken those steps. The country first proposed a broad framework for platforms in 2019, which was followed up by a 2021 notice from the CSA and the Investment Industry Regulatory Organization of Canada outlining how securities law applies to the business.

Remain or Leave?

Some crypto firms have reportedly decided to exit the Canadian market, while others announced plans to pursue registration.

Paxos is poised to leave Canada and shut down accounts in the country, according to its website. DYdX began winding down services in the country earlier this month, moving all existing users to close-only mode, according to a company blog.

In a statement to Bloomberg, Paxos said, “While our platform will no longer support Canadian customers in the immediate term, we will reassess our presence in this region in partnership with our clients’ evolving needs.”

“The CSA is committed to ensuring that market participants in Canada are protected when trading securities or derivatives, and that Canada’s capital markets remain fair, efficient and innovative,” Ilana Kelemen - a spokeswoman for the regulators’ group - said in an emailed statement.

Other firms are reaffirming their commitment to Canada. Coinbase, Binance, Kraken and Gemini reportedly number among the firms that have announced in recent weeks their filing of a “pre-registration undertaking” in Canada. 

Coinbase said it hired a country director and has over 200 Canadian engineers. Gemini said it is a sub-custodian to many Canadian crypto ETFs.

Binance’s Canadian affiliate reportedly said its paperwork - filed on behalf of itself, Binance Holdings Ltd. and founder Changpeng Zhao - outlines how it intends to operate, including its management and custody of user assets.

At present, only a handful of crypto trading platforms - including Fidelity Digital Assets Services and Bitvo Inc. - have been authorised to do business in Canada, according to CSA’s website. KuCoin and Poloniex have been banned in the country.

Source: Yahoo Finance

(Quotes via original reporting)