Canada Proposes Regulatory Framework For Crypto Exchanges

| Publish date: 03/16/2019
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The financial regulatory authorities in Canada are reportedly interested in the idea of setting up rules for digital currency exchanges. If this pushes through, this would become a huge change in the crypto space in the country.

The Need For Regulatory Requirements

According to a published consultation paper courtesy of The Canadian Securities Administrators (CSA) alongside the cooperation of the Investment Industry Regulatory Organization of Canada (IIROC), they are currently seeking help from the country’s fintech community. The goal is to find ways how regulatory requirements can be created and designed specifically for crypto platforms.

The president and CEO of IIROC named Andrew J. Kriegler digital and crypto assets continue to emerge in Canada. And as their presence grows, so is the area of interest around them.

With this, Kriegler believes it is high time for the country to adapt to the growing innovation. More importantly, there should be a way to provide much-needed clarity directly to the market. He is basically referring to how regulatory requirements can be developed in the best way possible and applied to these business models, which he refers to as “unique.” And as these processes are implemented, they will find a way to maintain protection around investors.

The regulators suggest that cryptocurrencies come with “novel” features and risks. And with these elements, applying securities laws is a must wherever applicable.

For example, if cryptos are deemed securities or derivatives and traded on a certain exchange, the latter would be automatically subjected to regulatory requirements around securities or derivatives. They added that most, if not all, “utility tokens” are proven to involve the process of distributing securities, with investment contracts being one of them.

Cryptos Are Hybrid

The agencies added that cryptos are, by nature, hybrid. In other words, they are capable of performing functions of not only one but more market participants. This includes, but not limited to, exchanges, alternative trading systems, clearing agencies, custodians, and even dealers.

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As such, it only makes sense for them to consider preparing and developing a set of “tailored” regulatory requirements, all of which will address features and risks that crypto platforms present. Currently, none of the crypto exchanges in the country is recognized as an exchange. They are not even authorized to operate either as a dealer or marketplace.

The regulators highlight the QuadrigaCX saga as a cautionary tale, which showcased the lack of regulations embracing the crypto space in Canada. The exchange’s CEO named Golden Cotten died and did not leave a way for his staff to access the computer responsible for storing the failing firm’s funds.

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