The Canadian Securities Administrators (CSA) recently published a notice describing new commitments it expects from crypto asset trading platforms (CTPs) seeking registration in Canada.
The CTPs will enter into a new version of preregistration undertakings (PRUs), which are legally binding documents. Registered CTPs will be contacted by their principal regulators about compliance with the new expectations.
The new commitments represent investor protections in light of the spate of CTP insolvencies that occurred in 2022, the CSA wrote. The new commitments touch on issues that include segregation of assets, leverage, determination of capital, transparency, and others.
The notice highlighted, “A prohibition on the part of the CTP in respect of clients buying or depositing Value-Referenced Crypto Assets (commonly referred to as stablecoins) through crypto contracts without the prior written consent of the CSA.”
The notice also explained, “CTPs are prohibited from permitting Canadian clients to enter into crypto contracts to buy and sell any crypto asset that is itself a security and/or a derivative. Staff is of the view that Fiat-Backed Crypto Assets generally meet the definition of ‘security’ and/or would meet the definition of ‘derivative’ in several jurisdictions.”
The CSA emphasized that it will not expect to provide consent for other types of stablecoin, such as algorithmic stablecoin, either.
While the CSA recognizes use cases for stablecoins such as payments and volatility hedging, it also considers them riskier than fiat currency even those with which the regulator permits crypto platforms to trade.
The notice stated, “We recognize that VRCAs may be as an on-ramp to deposit assets with the CTP, for the trading of other crypto assets, as a store of value during times of volatility in the crypto asset markets or to avoid converting their crypto assets into fiat currency, as a means of payment.”