Crypto industry insiders and leader have been asked for their input regarding new regulations jointly proposed by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC). The discussion paper published is called the “New Proposal Platform Framework” which will tweak existing regulations to fit a framework that is tailored to the specific risks and challenges posed by cryptocurrency exchanges.
The paper itself is not only aimed at fintech companies or cryptocurrency exchanges, but it is also open to investors and all stakeholders alike. The CSA’s goal is to gain external insight into what current regulations would best fit the cryptocurrency industry and have given all stakeholders in the process until May to get their answers and comments in.
Should pre-existing regulations be used?
The majority of the questions in the paper are focused mainly on how to define a crypto-currency exchange and exactly how far should the government go with the usage of pre-existing regulations.
The Canadian government has shown that it is open about the fact that they are starting from the ground up. At least in terms of their understanding of how to regulate the cryptocurrency market. They realize that there are many regulatory blind spots, or holes, that need attention.
Several experts are saying that the relationship between cryptocurrency and existing securities law being very unclear is the main problem.
Matt Burgoyne, a lawyer from Calgary, said on Twitter that a good example of that is how non-security tokens can be seen as derivatives when traded on Canadian exchanges. This would then subject them to the same regulations as traditional derivatives.
2/ non-security tokens trading on Canadian exchanges may be derivatives and still subject to regulation…this is a really detailed set of consultation questions, comments from industry due May 15! @BitvoExchange @ndaxio @BitcoinBrains
— Matt “bitcoin” Burgoyne (@BurgoyneMatt) March 14, 2019
He adds that there is a lot to understand and consider in the consultation paper – noting that exchanges must consider such things as interactions with an end user being defined as a derivative or as a futures contract.
Another lawyer, by the name of Evan Thomas, headed a legal team that summarized the paper. He told in an interview that there are some major issues with the paper. The most notable being the fact that Canadian securities regulations might not even have the jurisdiction to regulate platforms that trade crypto-assets because it can be argued that they are not securities.
he hoped that platform regulation would help with keeping the CSA from getting too much power over the fledgling crypto-asset industry. He is happy that the new framework will give provide transparency when looking at different types of crypto-assets and complementary services that are not made to be looked at by securities regulation. Among these are non-custodial cryptocurrency wallets and tokens which are neither investment contracts nor are they derivatives.
The Canadian government has held talks with industry before. This was in 2014 and 2018. However, this latest round of talks, along with the detailed paper sent out recently, come in the wake of what happened at QuadrigaCX. Following the sudden death of the owner of the exchange, users were left without access to their funds. It is estimated that $150 million has been locked up in the exchange, quite possibly forever.
The key here is that QuadrigaCX was completely unregulated and this latest push by the CSA is seen in some circles as an attempt to stop something similar from happening again.