Canada Considers Regulation of Crypto Asset Trading Platforms

Chamber Canada Presents Eight Principles-Based Recommendations

Canadian securities regulators are working to establish a regulatory framework for the digital asset marketplace. The Canadian Securities Administrator (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) recently published Joint Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms, requesting feedback from market participants on “how requirements may be tailored for Platforms operating in Canada whose operations engage securities law.” The blockchain industry has long called for regulatory clarity around the regulatory treatment of digital assets and trading platforms.

The versatility of digital assets has proved a challenge for regulators around the globe. The sheer number of unique characteristics that digital assets may represent means that much work remains to be done to understand their potential and functionality. A digital asset can be a security, a currency, a commodity, property, or even a hybrid of these characteristics. Some have even suggested that a digital asset may initially represent one functionality, such as a security, and then shift and represent another, such as a commodity. When it comes to the regulatory treatment of digital assets, this very versatility can be baffling at best.

The Chamber of Digital Commerce Canada welcomes the opportunity to engage with CSA-IIROC and recently submitted a comment letter on their Joint Consultation Paper. Below is a summary of our comments.

Our Recommendations for Canadian Regulators

At the heart of blockchain technology innovation is tokenized networks.  All assets, whether tangible or intangible, can be tokenized, tracked, traded, and stored on blockchains. Digital asset trading platforms are a foundational part of a global blockchain infrastructure. They are the on and off ramps into the blockchain ecosystem. In our response, we proposed eight core recommendations to CSA-IIROC regulators to help establish a robust blockchain ecosystem that meets the needs of securities and non-securities stakeholders:

Recognize that not all digital assets or digital asset trading platforms should be considered within the reach of securities, commodities, or derivatives regulatory frameworks.

  1. Publish frequent, timely, and transparent guidance on digital assets, digital asset trading platforms including guidance related to digital assets that are, and are not, considered to be securities, commodities, or derivatives.
  2. Coordinate with other policymakers and regulators, including the Department of Finance, FINTRAC, and the Canada Revenue Agency, to ensure that regulations are aligned, consistent, clear, and not overly burdensome to industry.
  3. Take a principles-based, technology-neutral approach to regulation and policy to foster innovation.
  4. Establish meaningful industry dialogue and collaborative consultations to create effective and appropriate policy, regulatory, and legislative regimes for the global digital marketplace.
  5. Establish a task force of experts to work with federal and provincial government policy makers and regulators to fully study and review each aspect of digital asset trading platforms alongside broader global regulatory frameworks and objectives.
  6. Develop objective investor and consumer education tools to help inform the public about digital asset trading exchange platforms and associated risks and benefits.
  7. Take the time necessary to research and review the global blockchain ecosystem, considering all policy and legislative perspectives, to design and support a competitive blockchain ecosystem in Canada.

Foundational Marketplace Research and Policy Discussions Are Needed

Blockchain technology is fundamentally reshaping how we interact with each other and how we acquire and transfer value digitally. Companies in all sectors, not just financial services sectors, are being impacted by this technology.  It is time to bring additional clarity and support to the blockchain ecosystem so that Canada does not get left behind while the rest of the world moves forward.

The much bigger question is where do we start?  The CSA-IIROC proposal brings the conversation forward, but industry participants feel quite strongly that it does so without addressing fundamental points of clarity like, when is a digital asset considered a security or not? And when is a trading platform no longer a money service business? There are many more questions that appear to be unanswered and, if addressed collaboratively between policy makers, regulators, and industry, may actually allow Canada to establish a clear and successful path forward.

Steps toward Making Blockchain Technology Mainstream

Working to establish cross-Canada policy and regulatory regimes is crucial to ensuring that innovators, markets, consumers, digital asset owners and trading platforms, and everyone in between knows how to best act to take advantage of blockchain technology. Through our work, it is clear that companies operating in Canada are keen to work with policy makers to establish a path forward. We encourage CSA-IIROC to find solutions that work nationally and internationally that encourage innovation and economic opportunity.

As a next step, we’re told by regulators that the industry comments will be considered in drafting a balanced policy and regulatory approach for digital asset or “crypto-asset” platforms.

The CSA and IIROC are expected to host broader industry roundtables and additional consultations as they work toward a proposed draft regulatory framework.

So, while the regulatory waters are still a bit murky for digital assets and their trading platforms in Canada, collaborative discussions that support industry will best promote this highly innovative sector of Canada’s digital economy while ensuring efficient functioning of the market place.

Following the Chamber’s recommendation, IIROC has launched a call for participants to join its newly established Crypto-Asset Task Force.

To view the Chamber’s comments to CSA-IIROC, please visit here.