A cryptocurrency, often refers to as a cryptoassets, is defined by the Financial Action Task Force (FATF) as ‘a math-based, decentralised convertible virtual currency that is protected by cryptography’. (cf. The FATF report, Virtual Currencies: Key Definitions and Potential AML/CFT Risks, published June 2014).
In other words, a secured technology – Blockchain – is used to record a virtual currency (electronic cash) ownership and enable payments between users. The best-known cryptocurrency being Bitcoin.
Cryptoassets rely on public and private keys to transfer value from one person (individual or entity) to another, and must be cryptographically signed each time it is transferred to prevent fraudulent transactions.
Cryptoassets have no intrinsic value
They only exist in a network and have no physical form
They are not issued and backed by a central bank
Cryptoassets are increasingly under Canadian watchdogs’ scrutiny. Applicable Canadian Securities Laws includes:
Joint CSA/IIROC Staff Notice 21‑329 — Guidance for Crypto-Asset Trading Platforms: Provides guidance on how securities legislation applies to CTPs that facilitate or propose to facilitate the trading of (i) cryptoassets that are securities (Security Tokens), or (ii) instruments or contracts involving cryptoassets, as indicated in CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto-Assets.
CSA Staff Notice 46-307 Cryptocurrency Offerings: Outlines how the requirements of applicable Securities Laws may apply to initial coin offerings (ICOs), cryptocurrency investment funds and the cryptocurrency exchanges trading these products.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. 17 (PCMLTFA)): The Financial Transactions and Reports Analysis Centre of Canada’s (FINTRAC) imposes regulatory requirements on reporting entities involved in the business of cryptoassets (e.g., record keeping, know your customer (KYC), registration, and reporting of certain electronic funds transfers and suspicious transactions).
The success and growing interest from investors in cryptoassets and the Covid-19 pandemic have stirred debate among central banks to assess the feasibility of creating a central bank digital currency which would be simple, transparent and secure. Indeed, tThe Bank of International Settlement (BIS) and seven (7) central banks including the Bank of Canada, the U.S. Federal Reserve, the European Central Bank and the Bank of England published a report laying out some key requirements for central bank digital currencies (CBDCs). (Cf. joint report, Central bank digital currencies: foundational principles and core features, published in October 2020).
Although CBDCs are not to be confused with cryptocurrencies, more on this distinction in our next AMEIS Regfacts edition.
Stay tuned !