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  • Writer's pictureDeborah

Released on July 6 by the Canadian Securities Administrators (CSA), CSA Staff Notice 81-336 Guidance on Crypto Asset Investment Funds that are Reporting Issuers (the Notice) clarifies CSA expectations for investment funds that hold or seek to invest in crypto assets, either directly or indirectly, within the framework of National Instrument 81-102 Investment Funds (NI 81-102).


CSA’s expectations are as follows.


Crypto asset and crypto asset market characteristics

The CSA staff are of the view that the most important considerations are

  • The ability to determine a fair value of the crypto asset

  • The liquidity of the crypto asset

  • The classification of the crypto asset (i.e., securities vs derivatives) and the implications arising from its classification.

Custody Requirements as set out in Part 6 of NI 81-102

The portfolio assets (including crypto assets) of public crypto asset funds must be held by custodians or sub-custodians that qualify under NI 81-102. The CSA staff are of the view that the “additional practices that have developed concerning the custody of crypto assets” must also be taken into consideration. Thus, practices pertaining to the custody of crypto assets that are consistent with NI 81-102 should be complied with, notably:

  • Crypto custodian expertise. The investment fund managers (IFM), consistent with its fiduciary obligations to the public crypto asset fund, should ensure that a proposed crypto custodian meets the expertise and experience requirements.

  • Primary storage of crypto assets in “cold wallets”. Crypto assets held on behalf of a public crypto asset fund should be held in online storage or “hot wallets” only as is necessary to facilitate purchases and redemptions by the fund. Otherwise, crypto assets are to be held in offline storage or “cold wallets” in secured facilities maintained by the crypto custodian.

  • Segregation of assets, visible on the blockchain. Assets of an investment fund held by a custodian or sub-custodian are required to be segregated according to Part 6 NI 81-102 (e.g. use of segregated wallets or an omnibus wallet visible on the blockchain so long as in each case the crypto custodian’s books and records clearly reflect the fund’s ownership of the crypto assets).

  • Website security measures. crypto custodians should use website protection measures such as two-factor authentication, strong password requirements that are cryptographically hashed, and encryption of user information, among other measures to secure client information and protect the crypto custodian’s website from hacking attempts.

  • Maintenance of insurance for corporate crime/theft relating to the storage of crypto assets. The crypto custodians for the existing public crypto asset funds should each maintain appropriate insurance for the crypto assets in their custody.

  • SOC-2 Type-2 Reports of the crypto custodian provided to the Fund’s auditors. The crypto custodians shall provide or make available for review, on an annual basis, by the public crypto asset fund’s auditor System and Organization Control (SOC) reports prepared which assess a service organization’s security, availability, processing integrity, confidentiality and privacy controls. Where a SOC report is not available, the crypto custodian shall permit the public crypto asset fund’s auditor to directly examine its controls.

Staking Crypto Assets

“Staking” refers to the act of committing or locking crypto assets in smart contracts to permit the owner or the owner’s agent to act as a validator for a particular proof-of-stake consensus algorithm blockchain.

The CSA staff expects public crypto asset funds interested in staking crypto assets held in their portfolios to implement the relevant policies and procedures, and this because staking may involve the issuance of a security or derivative.

Know-Your-product, Know-Your-Client and Suitability Obligations

To comply with their obligations, registrants must collect certain information from clients, take reasonable steps to have clients confirm the accuracy of the information and keep the information current.

Registrants are also expected to have sufficient information to make a reasonable determination of whether an investment action is suitable for a client.


The Notice also provide an overview of the Public Crypto Asset Funds market in Canada, clarify the current securities regulatory requirements applicable to Public Crypto Asset Funds and outline key findings from reviews of Public Crypto Asset Funds conducted by CSA staff (e.g., fund liquidity, exchange-traded mutual fund (ETF) structural matters and custody…).



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