On February 22, the Canadian Securities Administrators (CSA) issued CSA Staff Notice 21-332 to require unregistered crypto trading platforms (CTPs) operating in Canada and seeking registration to provide additional prescribed information to their principal regulators.
A pre-registration undertaking (PRU) is a requirement for unregistered CTPs that are continuing to operate in Canada while pursuing applications for registration (read our previous piece here).
This CSA’s step follows the recent CPTs insolvency events and aims to provide further protections to Canadian investors.
With the enhanced pre-registration undertaking (PRU), CTPs will be subject to new commitments, namely:
Custody and segregation of crypto assets held on behalf of Canadian clients
Prohibition from pledging, re-hypothecating or otherwise using crypto assets held on behalf of Canadian clients
Prohibition to offer margin, credit or other forms of leverage to any type of client
Commitments from controlling mind(s) and global affiliates that affect the Canadian Filer. To ensure the independence of the Canadian Filer, the Filer’s global affiliates, parent entities and/or their controlling minds will be expected to co-sign the enhanced PRU.
Restrictions in determining the capital of the CTP for excess working capital purposes and in determining the capital base of the CTP
Filing of financial information with the CSA on a regular basis
Retention of a qualified Chief Compliance Officer during the pre-registration process
Prohibition in respect of clients buying or depositing Value-Referenced Crypto Assets (commonly referred to as stablecoins) without the prior written consent of the CSA
Prohibition in respect of trades in crypto contracts based on proprietary tokens, except with the prior written consent of the CSA
Thus, impacted CTPs must
Provide a revised PRU within 30 days of the publication of this Notice
Implement the relevant changes within timeframes set out in the PRU
CTPs unable or unwilling to provide a revised form of PRU will be subject to compliance and enforcement action, including being named on a CSA Investor Alert and/or Investor Warning List and being directed to implement off-boarding and to impose access restrictions.