(Bloomberg) – Canada's recent move to impose stricter rules on crypto firms suggests that US regulators have allies against the asset class after last year's turmoil.
In February, the Canadian Securities and Exchange Commission gave unregistered cryptocurrency exchanges in the country 30 days to comply with what it calls a pre-registration requirement. Firms must comply with stricter client asset segregation regulations and are prohibited from offering margin or leverage to users in Canada.
The new rules are forcing companies in the industry to make some tough decisions about whether to comply, stay in the country, or choose not to. Several companies, including Coinbase Global Inc. Dan Binance, have stated that they intend to continue listing. But others, like stablecoin issuer Paxos and decentralized exchange dYdX, have decided to shut down their Canadian operations.
Canada's securities regulator teased the guidelines in December after FTX's collapse, saying it indicated a need for more oversight of the industry. The regulator said that cryptocurrency platforms "cannot or will not" join the new process of blocking Canadian users from using their services.
© Photographer. Sam Bankman Fred , founder of Victor J. Blue/Bloomberg FTX, in court"This is in response to recent events and the lessons learned from them," said Matthew Burgoyne, a Calgary attorney with the law firm Osler, Hoskin & Harcourt LLP.
The move comes amid shared US pressure on the industry, primarily through increased enforcement by the Securities and Exchange Commission and other agencies. The Securities and Exchange Commission (SEC) amended its proposed rules on Friday to clarify that digital asset exchanges and decentralized finance platforms must register with regulators. He proposed rules that would make it harder for crypto platforms to hold digital assets owned by hedge fund clients and private equity firms.
The agency has faced criticism from the industry and some US lawmakers, who say the SEC is relying too much on enforcement and not doing enough to provide clear guidance on registration and enforcement of securities rules in cryptocurrency trading platforms.
Since then, Canada has taken those steps, Burgoyne said. The country first proposed a broad platform framework in 2019, followed by a 2021 notice from the Canadian Space Agency and the Investment Industry Regulatory Organization of Canada outlining how securities laws apply to companies.
stay or go
Several crypto companies have decided to exit the Canadian market, while others have announced plans to continue listing.
According to its website, Paxos plans to exit Canada and close accounts in the country. DYdX this month began shutting down the service in Canada and putting all existing users in lockdown-only mode, according to the company's blog.
In a statement to Bloomberg, Paxos said: "While our platform will not support Canadian customers any time soon, we will reassess our presence in the region in collaboration with our customers' changing needs."
keep readingBurgoyne, whose client list includes companies that have decided to leave Canada and those that will stay, said the government was not intentionally trying to push companies out. "In fact, it's the complete opposite," he said. "They seek to allow cryptocurrency exchanges to remain and operate in Canada, but only subject to certain disclosure requirements, rules and regulations that protect users from bankruptcy risk, fraud risk and hacking risk."
However, the decision of some companies to exit the market is worrisome, especially when it comes to a mass exodus. If these trends continue, regulators will need to discuss the platform's rules and conditions with the industry, said Bourgon, who is a member of Alberta Securities' new business advisory board.
"CSA is committed to ensuring that market participants in Canada are protected when trading securities or derivatives and that Canadian capital markets remain fair, efficient and innovative," Ilana Kleiman, a spokeswoman for the watchdog group, said in a statement sent by email.
Other companies reaffirmed their commitment to Canada. Coinbase, Binance, Kraken and Gemini are some of the companies that have announced in recent weeks that they have made “pre-registration commitments” in Canada. Coinbase says it has hired a country manager and employs more than 200 Canadian engineers. Gemini says it is a sub-custodian of several Canadian ETFs.
Binance's Canadian subsidiary said its filing, filed on its own behalf, Binance Holdings Ltd and founder Changpeng Zhao, outlines how it intends to operate, including the management and custody of user assets.
Currently, only a few cryptocurrency exchanges, including Fidelity Digital Assets Services and Bitvo Inc., can do this. , which does business in Canada, reports the CSA website. KuCoin and Poloniex are banned in this country.
Most Read by Bloomberg
© 2023 Bloomberg L.P.