Canadian regulators issue new rules for crypto exchanges

Canadian regulators issue new rules for crypto exchanges

Canadian Securities Administrators (CSA) published an announcement on Wednesday detailing the updated conditions it requires of crypto asset trading platforms (CTPs) seeking registration in the country.

CTPs will have to abide by a new version of legally binding pre-registration undertakings (PRUs). Registered CTPs will receive communication from their primary regulators regarding compliance with the new rules.

Suppliers are expected to provide regular financial updates to the CSA and must engage the services of a certified Chief Compliance Officer (CCO) during the pre-registration process.

Those who wish to refrain from complying with the pre-registration requirements are expected to take appropriate measures to terminate their existing Canadian clients and impose restrictions to prevent Canadian customers from accessing their products or services.

The new commitments also address the separation of assets, leverage, capital determination, transparency, and other topics to protect investors after several CTPs went bankrupt in 2022.

Trading platforms are not allowed to use or pledge the cryptocurrency assets held on behalf of their Canadian customers, and specific limitations have been established to prevent a CTP from relying on these assets to determine their capital for operational purposes or to increase their operating capital.

The announcement emphasised the prohibition on CTP clients purchasing or depositing stablecoins “through crypto contracts” without prior written authorisation from the CSA.

Getting permission entails meeting the administrators’ stringent due diligence standards, which include confirming that a stablecoin is backed by fiat currency. In addition, the announcement said that the CSA would not approve stablecoins of other varieties, such as algorithmic stablecoins.

“For greater certainty, we would not expect to provide consent in respect of a VRCA that is not fully backed by an appropriate reserve but rather maintains its value through an algorithm,” the announcement said.

Nevertheless, it is possible for the CSA to make written exceptions. The announcement said that the CSA acknowledges that stablecoins can be used as a means to deposit assets with a trading platform to store value during times of market volatility or use them as a means of payment.