On March 29, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (together the ‘Regulators’) released Staff Notice 21-329 - Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements (The ‘Staff Notice’).
The Staff Notice, which does not introduce new regulatory requirements , aims at clarifying how securities legislation applies to Crypto Asset Trading Platforms (CTPs) that facilitate or propose to facilitate the trading of Crypto assets that are securities (Security Tokens) and instruments or contracts involving crypto assets.
The Staff Notice includes, an overview of the existing regulatory requirements applicable to CTPs, a description of key risks related to CTPs, and areas where flexibility may be available in how regulatory requirements will be applied to CTPs.
The Notice is addressed to CTPs that are considered “Marketplace Platforms” and other CTPs that trade Security Tokens or Crypto Contracts and referred to as “Dealer Platforms”. CTPs that operate activities that have elements of both Marketplace Platforms and Dealer Platforms are also in scope.
CSA/IIROC’s guidance on the regulatory approach to Dealer Platforms are as follows:
Requirement to be registered under the appropriate category with the relevant regulatory depending on the activities.
Interim approach allowing a Dealer Platform that trades Crypto Contracts to be registered as a restricted dealer to tackle the operational delay due to the amount of time it takes to prepare for and obtain registration as an investment dealer and IIROC membership. This approach will also benefit CTPs that are just interested in a testing environment to assess the technical merits of their proposed platform.
Clarification regarding the application process depending on which category of registration the Dealer Platform falls under.
Guidance on the regulatory approach to Marketplace Platforms include:
The application of the market integrity requirements as those in IIROC’s Universal Market Integrity Rules (UMIR) to Marketplace Platforms.
Where applicable, exemptions from existing regulatory requirements for Marketplace Platforms that also Conduct Dealer Activities.
Regulating a Marketplace Platform as an exchange in certain circumstances (e.g. if a Marketplace Platform trades Security Tokens and regulates issuers of those securities).
The requirement for a Marketplace Platform that is not an exchange to be registered as an investment dealer and IIROC member where applicable.
The CSA specifies that it does welcome innovation. Canadian and foreign fintech businesses that help bolster innovation must ensure to comply with the relevant regulatory requirements.
The next step for the CSA will be to review the regulatory framework applicable to dealers and marketplaces that trade over-the-counter derivatives.