CSA enhances regulation of unregistered crypto asset trading platforms

March 6, 2023 | Wayne Logan, Alissa Ricioppo, John-David D’Souza, Usama Rashid

On February 22, 2023, the Canadian Securities Administrators (the “CSA”) published Staff Notice 21-332: Crypto Asset Trading Platforms: Pre-Registration Undertakings Changes to Enhance Canadian Investor Protection (the “Staff Notice”), which marks another positive step towards clarity in regulation of the crypto asset industry in Canada. The new requirements introduced by the Staff Notice, discussed below, will position Canada at the forefront of crypto asset regulation by contributing to transitioning the crypto asset market towards regulatory parity with the securities market in relation to important matters, like investor protection.

The Staff Notice announces that new investor protection provisions have been incorporated into the standard pre-registration undertaking form (a “PRU”) that is now required to be filed by all crypto asset trading platforms (“CTPs”) operating in Canada while simultaneously seeking registration with relevant regulators. A PRU is a document which contains terms that the related unregistered CTP commits to complying with while awaiting approval of its application for registration. The concept for CTPs to file a PRU was first introduced in August 2022 in order to promote investor protection and level the playing field between unregistered CTPs and those that had already obtained registration. Previously the PRU had been used on a fragmented basis, but with the publication of the Staff Notice, all unregistered CTPs operating in Canada are required to file PRUs if they wish to continue to operate in Canada.

The new standard PRU template (the “Enhanced PRU”) includes the following changes, as summarized in the Staff Notice:

  • enhanced commitments in relation to the custody and segregation of crypto assets held on behalf of Canadian clients;
  • enhanced commitments to preclude the unregistered CTP from pledging, re-hypothecating or otherwise using crypto assets held on behalf of Canadian clients;
  • a prohibition on the part of the CTP offering margin, credit or other forms of leverage to any type of client in connection with the trading of crypto contracts or crypto assets on the CTP’s platform;
  • new commitments from controlling mind(s) and global affiliates that affect the CTP entity seeking registration and relief;
  • restrictions on the part of the CTP relying on crypto assets, including proprietary tokens issued by the CTP or an affiliate of the CTP, in determining the capital of the CTP for excess working capital purposes and in determining the capital base of the CTP;
  • enhanced commitments in relation to the filing by the CTP of financial information with the CSA on a regular basis;
  • enhanced commitments in relation to the retention of a qualified Chief Compliance Officer (CCO) during the pre-registration process;
  • a prohibition on the part of the CTP in respect of clients buying or depositing Value-Referenced Crypto Assets (commonly referred to as stable coins) through crypto contracts without the prior written consent of the CSA; and
  • prohibition on the part of the CTP in respect of trades in crypto contracts based on proprietary tokens, except with the prior written consent of the CSA.[1]

Canadian unregistered CTPs are expected to file an Enhanced PRU within 30 days of February 22, 2023 and make all necessary changes within their systems to ensure compliance within the timeframes set out in the PRU. If a CTP is unable or unwilling to file the enhanced PRU or implement the required changes to their systems within the timelines imposed, it will be required to off-board existing users in Canada and impose restrictions to prevent Canadian users’ access to their products and services (in addition to complying with any other enforcement measures imposed by the CSA).

Miller Thomson LLP’s Blockchain, Cryptocurrency and Smart Contracts lawyers focus on securities, intellectual property, corporate and tax law in the context of the crypto and blockchain space. Please reach out to a member of the team if you have any questions. 

[1] Canadian Securities Administrators, Staff Notice 21-332, Crypto Asset Trading Platforms: Pre-Registration Undertakings Changes to Exchange Canadian Investor Protection (22 February 2023) at 1.


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