The Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) are urging crypto trading platforms to prioritize their compliance with Canadian securities laws by focusing on their applications for investment dealer registration and CIRO membership.
In a news release, the CSA and CIRO urged these platforms to seek legal counsel regarding their obligations under Canadian securities law and under the CIRO’s rules. By doing so, these platforms can better navigate the complex regulatory landscape and ensure that their operations remain compliant.
For Canadian lawyers advising clients in the crypto space, this development highlights the importance of staying informed about the evolving regulatory requirements and helping their clients adhere to the regulatory framework.
Ensuring that these platforms comply with securities laws is not only critical for the platforms themselves but also for protecting the interests of investors and for maintaining the integrity of Canada’s financial markets.
Regulatory landscape
In March 2021, the CSA and the Investment Industry Regulatory Organization of Canada (IIROC), now the CIRO, issued Staff Notice 21-329. This notice provided guidance on compliance with securities law requirements for crypto trading platforms.
This guidance aimed to help these platforms understand their obligations under Canadian securities legislation, particularly for those facilitating or proposing to facilitate the trading of crypto assets considered securities (security tokens) or instruments or contracts involving crypto assets (crypto contracts).
The guidance emphasized the need for platforms engaging in trading securities or derivatives relating to crypto assets to register as investment dealers and secure membership with the CIRO. This regulatory oversight helps manage the key risks associated with crypto trading platforms, including market integrity, investor protection, and the stability of the financial system.
Initially, an interim approach allowed these platforms to operate as restricted dealers under a time-limited framework while working towards full registration and CIRO membership. This interim approach sought to give these platforms the necessary time to align their operations with the stringent requirements of Canadian securities laws. The CSA expected these platforms to diligently pursue their registration and membership within two years.
Now that the time-limited period has elapsed, the CSA has made it clear that it expects these platforms to have thoroughly reviewed and understood the requirements for becoming investment dealers and CIRO members. The CSA encouraged platforms actively engaged in the registration process to contact their principal regulator to discuss whether continuing as a restricted dealer would be appropriate.
The CIRO urged platforms seeking membership to reach out and to arrange a pre-filing discussion with the team responsible for managing membership applications so that applicants could receive the support that they needed throughout the process and so that any potential issues could be addressed early.
The CIRO expressed its commitment to ensuring an efficient and thorough review process for platforms applying for membership. This process includes a readiness questionnaire to assess whether a platform has the necessary infrastructure and capital in place to meet the requirements, as well as an extensive review. After that, a recommendation will be forwarded to the CIRO’s board of directors for a final decision.