Joint CSA/IIROC Consultation Paper 21‑402 Proposed Framework for Crypto-Asset Trading Platforms

The emergence of “digital assets” or “crypto assets” continues to be a growing area of interest for regulators globally. Innovations like distributed ledger technology (DLT) and crypto assets are relatively new and are transforming the landscape of the financial industry. Interest in crypto assets among investors, governments and regulators globally has increased significantly since the creation of bitcoin in 2008 and continues to grow. Early in 2018, at its peak, the total value of crypto assets was estimated, by one source, at more than US$800 billion.1  While the value has since fallen, trading volumes remain significant. Today, there are over 2000 crypto assets2  that may be traded for government-issued currencies or other types of crypto assets on over 200 platforms3 . that facilitate the buying and selling or transferring of crypto assets (Platforms).  Many of these Platforms operate globally and without any regulatory oversight.

Although DLT may provide benefits, global incidents point to crypto assets having heightened risks related to loss and theft as compared to other assets. Regulators around the world are currently considering important issues surrounding the regulation of crypto assets including the appropriate regulation of Platforms. The Canadian Securities Administrators (the CSA) and the Investment Industry Regulatory Organization of Canada (IIROC, and together with the CSA, we), have been engaged with regulators globally, through IOSCO and other innovation initiatives, to seek input on a variety of regulatory approaches that exist in this area.

Platforms, depending on how they operate and the crypto assets they make available for trading may be subject to securities regulation. The CSA, through its Regulatory Sandbox4 , is in discussions with several Platforms that are seeking guidance on the requirements that apply to them. We have heard directly from Platform operators and their advisers that a regulatory framework is welcome, as they seek to build consumer confidence and expand their businesses across Canada and globally. 

Currently there are no Platforms recognized as an exchange or otherwise authorized to operate as a marketplace or dealer in Canada. As such, the CSA has urged Canadians to be cautious when buying crypto assets.5

Platforms failitate the buying and selling of crypto assets and perform functions similar to one or more of exchanges, alternative trading systems (ATSs), clearing agencies, custodians and dealers. Depending on their structure, they may also introduce novel features which create risks to investors and our capital markets that may not be fully addressed by the existing regulatory framework. Where securities legislation applies to Platforms we are considering a set of tailored regulatory requirements for them to address the novel features and risks (the Proposed Platform Framework).

We endeavor to facilitate innovation that benefits investors and our capital markets, while ensuring that we have the appropriate tools and understanding to keep pace with evolving markets.  The purpose of this joint CSA/IIROC Consultation Paper (the Consultation Paper) is to seek feedback from the financial technology (fintech) community, market participants, investors and other stakeholders on how requirements may be tailored for Platforms operating in Canada whose operations engage securities law. We intend to use this feedback to establish a framework that provides regulatory clarity to Platforms, addresses risks to investors and creates greater market integrity.

Throughout the Consultation Paper, investors participating on Platforms may be referred to as either investors or participants.

• 1Click here
• 2Coinmarketcap.com listed 2098 different crypto assets as of March 1, 2019. Click here.
• 3Coinmarketcap.com listed 241 Platforms as of March 1, 2019. Click here.
• 4The CSA Regulatory Sandbox is an initiative of the CSA to support businesses seeking to offer innovative products, services and applications in Canada.
• 5The CSA has previously issued investor alerts reminding investors of the inherent risks associated with crypto asset futures contracts and the need for caution when investing with crypto asset trading platforms.