Robust Regulation Makes Canada Attractive to Global Cryptocurrency Market


The strength of Canadian regulation of cryptocurrency trading has made it “inherently attractive” to domestic and foreign traders and portfolio and fund managers active in what has become a burgeoning asset class.

“It’s a solid regulatory review that looks at facets that I don’t think are looked at globally, whether it’s counterparty risk, custodians, internal control, [or] cybersecurity,” said Julie Mansi, a partner at Borden Ladner Gervais who has extensive experience in securities regulation.

Securities regulators in other jurisdictions still tend to be reviewing and trying to get to the “right structure,” he said, “where Canada has really messed with both feet and really reviewed the risks with these platforms and with the offerings and created a solid path to registration.”

In March 2021, the Ontario Securities Commission, the largest of Canada’s provincial securities regulators, notified Crypto Asset Trading Platforms (CTPs) offering derivatives or securities trading in the province that needed to register with the Investment Industry Regulatory Organization of Canada (IIROC). British Columbia and other provinces did the same. Those notices followed in the footsteps of a joint notice from the IIROC and Canadian securities administrators providing “guidance” on how securities regulations apply to CTPs.

Currently, there are only seven platforms. registered to offer crypto products in Ontario, but dozens more are indicating their intent to register, according to the Ontario Securities Commission (OSC), which has also launched enforcement actions against the holds, including those from Seychelles. Poloniex. Hearings related to that case are scheduled for later this month.

While regulation of CTPs in Canada is in full swing, Cassels Brock & Blackwell partner Alison Manzer said there is nothing unique or innovative about the system, rather the cryptocurrency is properly recognized as “a digital representation of something”.

Manzer said there was “a lot of confusion” at first about whether digital assets were “something separate and apart from what they actually represented. But the conclusions being reached by regulation in Canada, the US, the EU, [and elsewhere], is that they are not. They are simply a digital representation.”

Those digital assets fit into four categories, he explained: a form of currency, a good or service, a security, or a commodity. So if the digital asset fits into a category that would normally be regulated, such as a security or a derivative, then it will be. And if it isn’t, like a non-fungible token (NFT) that is a work of art, then it won’t be.

Back at the forefront, the world’s first bitcoin exchange-traded fund, the Purpose Bitcoin ETF, began trading on the Toronto Stock Exchange in February of last year.

Canada is also in line with most countries in the world in terms of regulating money service businesses. Any organization that operates in virtual currency exchange or virtual currency transfer services must register with the Financial Transactions and Reports Analysis Center of Canada (FINTRAC) and comply with the obligations and regulations under federal legislation to combat money laundering. and the financing of terrorist activities. These include companies that trade in so-called stablecoins.

“The regulation is very much in line with what exists in the other G20 countries,” said Simon Grant, co-head of the Bennett Jones blockchain and fintech practice group.

Manzer said that what is still missing is the regulation of how cryptocurrency wallets and custody chips are set up.

“I haven’t seen any country move into this one yet, because that’s where real abuse is happening right now on the cybercrime side,” he said.

Grant said he’s seeing a lot of activity from foreign money service companies in Canada: registering as a dealer, mergers and acquisitions, raising capital, taxes and litigation. There are also many exciting fintech innovations in this area, he said, such as “open banking” and the next release real time rail payment system

“Across the company, there has been a lot of activity in all areas related to crypto and fintech, particularly in the last six to nine months,” he said.

Mansi said that BLG’s digital assets team, which she says “is much more than just trading Bitcoin!”, consists of 15 to 17 busy lawyers. The big issues they are dealing with right now are Russian economic sanctions and asset seizure requests related to the controversial “liberty convoy,” the protests against COVID-19 mandates that crisscrossed Canadian provinces before converging in Ottawa in January.

“What I think is less known is how much more agile crypto trading platforms are in meeting user requests and asset freezing than financial institutions because of the technology behind it,” Mansi said. “They can, in a matter of minutes, isolate and freeze an account.”

Carol Derk, another BLG partner whose specialty is product development, said that Vancouver and Toronto are the hot spots, and that there is a lot of work around NFTs, including in relation to art and video games, as well as helping foundations and charities to raise money. for Ukraine. Calgary is not far behind, with Binance, the world’s largest crypto exchange, establishing its Canadian headquarters there.

The next horizon will be the introduction by more countries, including Canada, of government-backed central bank digital currencies (CBDCs), Manzer said. Canada is in the research stage for this. Once they become broader based (there are only a handful of Caribbean nations that have them right now), predicts “a very significant implosion” in the thousands of mostly unregulated cryptocurrencies around the world.

He added that there is already a move in the market towards stablecoins or asset-backed currency, which are not considered as speculative as most cryptocurrencies now. Such a government-backed digital currency will likely also mean that financial institutions will start trading and trading in them, thus “flooding” those less stable cryptocurrencies.