Overview of Canada’s Crypto Regulations
• Countries around the world have chosen one of two approaches to regulating crypto: either embracing the industry or limiting it.
• The Canadian Securities Administrators (CSA) published a notice on Wednesday, February 22nd, detailing new commitments expected from crypto exchanges that wish to register and operate in Canada.
• These commitments are part of an investor protection effort due to the issues experienced in 2022 with FTX and Terra, and cover topics such as leverage, asset segregation, capital determination, transparency, etc.
Regulate to Protect Approach
The “regulate to protect” approach is popular in Asia when it comes to regulating cryptocurrency. This approach aims to create a safe environment for investors while encouraging innovation in the field. This is a stark contrast with countries like the US who take a more enforcement-oriented angle when it comes to regulations.
Canada’s Exchange Requirements
In order to comply with these regulations, Canadian crypto asset trading platforms (CTPs) must enter into preregistration undertakings (PRUs). These are legally binding documents which will be assessed by regulators before CTPs can operate within Canada. The PRUs cover topics such as leverage limits, asset segregation, capital requirements and transparency standards set by the CSA.
Investor Protection Effort
The primary purpose of these exchange requirements is investor protection due to all the issues experienced with FTX and other blockchain businesses in 2022. This has led authorities in Canada to increase regulation of their digital currency market so that similar incidents do not happen again. It also hopes that this will create a more secure environment for investors while still allowing innovation within the space.
Impact on Stablecoins
Unfortunately for stablecoins, these new regulations leave little room for them as they do not fit into any existing category under current law. As such, it is unclear whether or not stablecoins will be able find a place within Canada’s regulatory framework anytime soon.