On December 13, 2023, the CIRO Board of Directors granted the following exemptions to Wealthsimple Investments Inc. (WSII), related to WSII’s intention to transact in crypto assets:

• An exemption from the requirement under IDPC Rule 4456 to maintain financial institution bond (“FIB”) insurance providing coverage for all types of losses specified in that Rule, subject to the conditions described below, and
• An exemption from the requirement under IDPC Rule 4342 that client assets must be held at an Acceptable Securities Location and the requirement set out in IDPC Form 1 that imposes a capital penalty equivalent to 100% of the market value of the assets held at any non-Acceptable Securities Location

subject to conditions described below.

1. Authority to Grant Exemptions

IDPC Rule 1302 permits the CIRO Board of Directors to exempt a Dealer Member from any provision of the Rules where it is satisfied that to do so would not be prejudicial to the interests of Dealer Members, their clients or the public. In granting an exemption, the Board may impose such terms and conditions as are considered necessary.

2. Exemptions Granted and Conditions

Insurance Exemption

The CIRO Board of Directors granted an exemption from the requirement under IDPC Rule 4456 to maintain FIB insurance providing coverage for all types of losses specified in that Rule.

This exemption is subject to the following conditions:

1. The relief and its conditions apply only to WSII’s distribution of Crypto Contracts and operation of a platform that facilitates the buying, selling and holding of crypto assets.
2. WSII shall obtain an FIB policy that provides coverage for all its crypto assets held in internal custody once one becomes available to WSII.
3. WSII will make best efforts to promptly obtain additional or excess FIB coverage with respect to crypto assets held in cold storage to address any coverage deficiency.
4. WSII must deduct the following from its risk adjusted capital calculation:
   1. total of the annual cost by coin under its guarantee(s)
   2. any insurance deductible under its insurance policies
5. WSII must ensure that a WSII Trust Account is opened at an “Acceptable Institution” for the purposes of IDPC Rule 1201 and Form 1 and is operated in a manner acceptable to CIRO.
6. WSII must, in the event it determines that it has a coverage deficiency in any of its securities locations, fund the WSII Trust Account dedicated to covering an amount greater than or equal to CIRO’s minimum FIB insurance coverage formula for client assets.
7. WSII is prohibited from using client free credit cash balances to fund the WSII Trust Account.
8. When determining its risk adjusted capital, WSII must deduct the trust account balance.
9. WSII must obtain and review the SOC 2 Type 2 reports from its custodians on an annual basis, and provide an annual SOC 2 report, that includes testing that covers the applicable controls securing its Fireblocks ecosystem.

Custody Exemption

In respect of certain proposed custodians of WSII crypto-assets, the CIRO Board of Directors also granted exemptions from the requirement under IDPC Rule 4342 that client assets must be held at an Acceptable Securities Location and the requirement set out in Form 1 that imposes a capital penalty equivalent to 100% of the market value of the assets held at any non-Acceptable Securities Location.

These exemptions are subject to the following conditions:

1. The relief and its conditions apply only to WSII’s distribution of Crypto Contracts and operation of a platform that facilitates the buying, selling and holding of crypto assets.
2. If directed by CIRO, the relief applies for an initial period of one year and may be extended at CIRO’s discretion if CIRO determines that the custodian is making sufficient progress toward meeting the ASL requirements under the general notes and definitions to Form 1.
3. At all times, WSII will hold not less than 80% of the total value of all crypto assets held on behalf of clients with one or more third-party custodians that has been approved by CIRO and is functionally independent of WSII, within the meaning of National Instrument 31-103.
4. WSII must ensure and regularly confirm to CIRO, that the custodians at all times:
   1. maintain their good standing status as appropriately registered trust companies subject to relevant regulatory oversight, and
   2. comply with the relevant regulatory capital and insurance requirements.
5. If directed by CIRO, WSII must provide clear disclosure informing clients of the regulatory oversight of a custodian and provide a link to the relevant regulator’s website. The content and form of this disclosure will require the approval of CIRO staff and clients must be required to acknowledge they have read and agreed to the disclosure.
6. WSII must verify that the custodians maintain a net worth satisfactory to CIRO.
7. If directed by CIRO, WSII must ensure the total market value of crypto asset holdings held at any custodian does not exceed the criteria specified by CIRO (the cap). The cap will be reviewed, at a minimum, on a bi-annual basis by CIRO staff and may be adjusted at staff’s discretion. WSII must promptly notify CIRO if WSII believes WSII may exceed the cap.
8. WSII will obtain from the custodians a SOC 2, Type 2 report to be provided to CIRO on an annual basis.
9. Each year, WSII will provide CIRO with a copy of the annual audited financial statements prepared for each custodian.
10. WSII’s custody agreements must be in a form acceptable to CIRO and WSII must ensure that any proposed material amendments to the agreement are approved by CIRO.
11. WSII will promptly notify CIRO if any relevant regulatory authority makes a determination that a custodian of WSII client’s crypto assets is not permitted by the regulatory authority to hold client crypto assets.
12. WSII will notify CIRO, promptly, of any material breach or failure of a custodian’s systems of controls or supervision in relation to the crypto assets held by the custodian, and the steps taken by WSII to address each such breach or failure.

As is standard for exemption orders of this type, the exemption order also specified that:

• The Board of Directors reserves the right to revoke WSII’s exemption, at any time, upon notice to the applicant.
• This exemption order is void upon the earliest of the following taking place:
  • The implementation of any material amendments to the rules by CIRO or the provincial and territorial securities regulators relating to insurance requirements and/or the capital requirements arising from securities held in custody at a non-acceptable securities location. CIRO, and not WSII, will determine whether any rule amendments implemented are considered to be related to insurance requirements and/or the capital requirements arising from securities held in custody at a non-acceptable securities location and are considered to be material, thus rendering this exemption order void.
  • WSII’s breach of any of the representations of the applicant in its application for this exemption order.
  • WSII’s breach of any of the conditions imposed with respect to the Insurance Exemption and Custody Exemption.

In addition, in connection with WSII’s related business model change filing to transact in crypto assets, WSII made certain representations and agreed to provide certain undertakings to CIRO.

Staff will only recommend approval of an exemption of this type under exceptional circumstances, and where the Dealer Member demonstrates that it has taken all reasonable steps to comply with CIRO Rules.

For questions and further information regarding this Bulletin, please contact [email protected].