Last year was an interesting one for crypto asset trading platforms in Canada.
A downturned market has spurred potential consolidation efforts while financial scandals—which grazed Alberta through Calgary’s Bitvo—have prompted the Alberta Securities Commission and Canadian Securities Administrators to warn investors that trading in crypto assets comes “with elevated levels of risk that may not be suitable for many investors, in particular retail investors.”
The CSA has noted that, generally speaking, “trading crypto assets is a speculative activity, and the value and liquidity of crypto assets are highly volatile.”
“Crypto asset trading platforms that operate in Canada and trade securities or derivatives are required to comply with Canadian securities law requirements, including registering with securities regulators. This regulatory oversight plays an important role in investor protection.”
According to the Alberta Securities Commission, recent industry events showcase the high risk level associated with trading crypto assets, even in a regulated environment.
“Recent insolvencies involving several crypto asset trading platforms highlight the tremendous risks associated with trading crypto assets,” said Stan Magidson, the Alberta Securities Commission chief executive.
Magidson says risk is further elevated “particularly when conducted on unregistered platforms based outside of Canada.”
Furthering an update in December 2022, the CSA this week published a notice describing enhanced investor protection commitments it expects from crypto asset trading platforms operating in Canada.
These commitments are made in the form of an enhanced pre-registration undertaking, which will include higher “expectations regarding the custody and segregation of crypto assets held on behalf of Canadian clients and a prohibition on offering margin, credit, or other forms of leverage to any Canadian client.”
They will also prohibit crypto asset trading platforms from permitting clients to purchase or deposit value-referenced crypto assets—commonly referred to as “stablecoins”—and proprietary tokens without the prior written consent of the CSA.
If a CTP is unable or unwilling to provide an enhanced pre-registration undertaking, it must “off-board existing Canadian users and impose restrictions to prevent Canadian users from accessing its products or services,” according to a statement from the CSA.