Financial authorities in Canada have finally determined to bring cryptocurrency trading platforms under a federally legal framework.
In a long-awaited move, Canada intends to build a comprehensive regulatory framework for local cryptocurrency trading platforms. To achieve this, the Canadian Securities Administrators (CSA) has joined its forces with the Investment Industry Regulatory Organization of Canada (IIROC). Together, they published a 28-page consultation paper which outlines their proposals and vision of future rules for digital-asset trading.
Now, the watchdogs are waiting for feedback from the national cryptocurrency space participants — including fintech companies and investors. The regulators hope this will help them better understand the industry and its needs while developing an efficient regulatory framework. The paper will be open for public comments and appropriate suggestions until May 15.
A Long-Standing Need
Although the authorities didn’t explicitly acknowledge this, there’s a widespread belief that the trigger for such a move was the notorious case of QuadrigaCX — a bizarre story of a loss of roughly $190 million in both cryptocurrency and fiat currencies. The recent event highlighted the lack of regulation in Canada’s cryptocurrency industry and forced the watchdog to address such risks and initiate a broader regulatory process.
The community wants the Canadian authorities to improve supervisory measures so that another Quadriga could never happen again. Industry experts also raised their concerns about poor accounting standards, weak reporting requirements, and almost non-existent regulations in the crypto space.
The regulatory bodies, for their part, admit the issue, too. The paper mentions that, currently, there are over 2000 crypto assets traded on more than 200 platforms — but most of these platforms “operate without any regulatory oversight.” Now, local cryptocurrency platforms are not legally recognized as exchanges and are not authorized to operate as a dealer or marketplace.
Meanwhile, the CSA adds, a number of cryptocurrency platforms are in contact with the regulator. Businesses, which actually are not legally compliant, desperately need more clarity. They ask for credible and sensible guidance as they strive to build their businesses in Canada and gain consumer confidence.
A Vision of the Future
Taking this into consideration, the Canadian authorities have come up with a set of new proposals aimed at regulating cryptocurrency exchanges in the country. They include, among others, mandatory licensing. Notably, the paper says that cryptocurrency trading platforms are “hybrid in nature” and can simultaneously perform functions of different market participants, like exchanges, custodians, dealers, clearing agencies, and many others. This requires a brand new approach and regulation.
The proposals pay a lot of attention to improvements in such areas as insurance, transparency, and security procedures. The regulators tend to apply securities and derivatives requirements to cryptocurrencies wherever applicable. They also suggest considering utility tokens as securities.
All in all, Canada hopes to develop and implement a tailored set of laws designed to address cryptocurrency-related risks and protect investors. At the same time, the proposed regulatory framework should provide legal clarity for cryptocurrency platforms and attract more capital to the industry without curbing its growth.
According to the paper, it is high time for the country to adapt to and create space for fintech innovations and new business models.
Do you believe the Canadian regulators would not have moved if not for the QuadrigaCX debacle? Let us know your thoughts in the comments below!
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