IMPACT ANALYSIS: Canada tightens supervision, enforcement of cryptoasset economy

Toronto (Thomson Reuters Regulatory Intelligence) – Financial regulators in Canada, including the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) are expanding their supervisory oversight of the cryptoasset sector, branching beyond initial coin offerings and other types of token offerings.

Some of Bitcoin enthusiast Mike Caldwell’s coins are pictured at his office in this photo illustration in Sandy, Utah, January 31, 2014.

Regulators collectively are developing frameworks for cryptoasset trading that resemble those now in place to regulate financial markets. These developments could have numerous compliance implications for cryptoasset trading platforms and other firms that deal in cryptoassets.

Other business activities, including consulting on advising, marketing and offering cryptoassets, are being closely scrutinized for potential regulatory violations.


Earlier this year, the CSA and IIROC published a consultation paper on a proposed framework{here} for cryptoasset trading platforms.

Cryptoasset trading platforms are not currently recognized as exchanges or dealers in Canada and are not subject to regulatory oversight. The absence of investor safeguards has become an increasingly pressing concern for financial regulators.

The proposed framework, which is based on regulatory regimes for securities, commodity futures exchanges and alternative trading systems, will apply to cryptoasset trading platforms with participants in Canada, regardless of where the platform is located. Cryptoassets that are considered securities or derivatives could be subject to regulatory compliance requirements under the proposed framework.

Platforms could be subject to numerous operational requirements, based on those currently applicable to securities and derivatives dealers. On the compliance side, platforms could be required to implement policies and procedures for the custody and verification of assets.

Platforms could also be required to maintain insurance at the a protection level equivalent to what is required of securities dealers and regulated exchanges. Cyber risk is a particular concern, and platforms may find it costly to obtain the level of cyber risk insurance needed to safeguard their operations.

Regulators are also concerned about business contingency and continuity protection for online as well as offline custody of assets. Earlier this year, the founder of Quadriga, a digital currency platform, died abruptly, leaving the firm unable to access cryptoassets belonging to clients that had been stored offline in “cold storage”{here}. The incident highlighted an investor-protection gap in oversight that Canadian regulators are now seeking to fill.


Some provincial securities regulators also are using stringent enforcement to protect investors. In Ontario, the Ontario Securities Commission (OSC) recently sanctioned a cryptoasset firm for violations of provincial securities laws.

The OSC recently approved a settlement agreement{here} with CoinLaunch, a cryptoasset consultant that offered marketing and promotional services to prospective token issuers.

For a period of 6 months to September last year, CoinLaunch provided services to token issuers, including assistance in administering and promoting cryptoasset token offerings. Specifically, CoinLaunch helped companies solicit investors to register to invest in offerings, took offerings on roadshows and marketed token offerings among other activities. The OSC determined that these services, taken together, constituted acts in furtherance of trades of securities and therefore, required registration under Ontario securities laws. However, when examined individually, the OSC noted that each activity may not on its own constitute an act in furtherance of a trade.

At the time, CoinLaunch had not registered as a dealer and had not sought an exemption from dealer registration requirements under the Ontario Securities Act. In general, firms that trade in, or advise on trading in securities meet a “business trigger” threshold and are required to register as dealers with the OSC. Individuals who trade, advise or underwrite on behalf of a registered dealer or act as the ultimate designated person of a registered firm are also required to register.

OSC stated in the settlement agreement that CoinLaunch only became aware of its obligation to register as a result of regulatory investigation. CoinLaunch then took some remedial steps and ultimately decided to wind up its operations. These remedial actions were seen by the OSC as significant mitigating factors to sanctions.

CoinLaunch ultimately paid a fine of C$30,000 and disgorged C$12,233. The firm’s former chief executive officer also agreed not to act as a director or officer of a securities trading firm that was not registered or exempted from registration with the OSC.


Financial regulators in Canada seem to be approaching oversight of the cryptoasset sector from an investor protection angle. Policy developments and enforcement action by CSA member jurisdictions such as the OSC suggest that activities beyond ICOs and token offerings are being closely scrutinized. Regulators will look at whether activities being carried out should be subject to regulatory requirements, as well as whether any activities are being carried out in violation of securities regulation.

As seen in the OSC’s settlement agreement with CoinLaunch, cryptoasset firms could be subject to OSC oversight beyond trading activities. Other activities such as solicitation of investors and marketing could also be subject to OSC supervision if they collectively meet the business trigger. Firms need to also be mindful that the OSC’s jurisdiction applies to entities located in Ontario as well as businesses that transact or solicit investments from residents of the province. Recent successful enforcement actions headed by the OSC against offshore trading platforms is setting a precedent for levying sanctions against offshore entities for violations of Ontario securities laws.

*To read more by the Thomson Reuters Regulatory Intelligence team click here:

(Helen Chan is a regulatory intelligence expert for Thomson Reuters Regulatory Intelligence, based in Hong Kong. Email Helen at

This article was produced by Thomson Reuters Regulatory Intelligence – – and initially posted on Aug 12. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters

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