Posted 1 year ago | by Ben Armstrong

New Guidance for Cryptocurrency Exchanges Issued by Canadian Regulator (CSA)

New guidance to determine which digital currency trading platforms fall under derivatives law has issued by Canadian authorities. The Canadian Securities Administration (CSA) talked about new provisions in the “Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets”, which was published last week.

The CSA took into account that some of them only provide their users with a contractual right or claim to a crypto asset, and do not immediately transfer it to a user, after an analysis of trading techniques on different platforms. These crypto trading platforms are subject to securities legislation and thus fall under derivatives laws in Canada.

The details of the CSA comms are as below:

“Potentially, there will be ongoing reliance and dependence of the user on the Platform until the transfer to a user-controlled wallet is made. Until then, the user would not have ownership, possession, and control of the crypto assets without reliance on the Platform. The user would be subject to ongoing exposure to insolvency risk (credit risk), fraud risk, performance risk and proficiency risk on the part of Platform.”

The CSA is Providing Clarification

Securities laws will not be applied to crypto exchanges on which the underlying crypto asset is not a security or derivative, and crypto-assets are delivered to a user immediately.

In the past, there were probes into potentially fraudulent crypto investment programs as part of the North American Securities Administrators Association’s (NASAA) “Operation Cryptosweep.”, which was launched by state and provincial securities regulators in the United States and Canada.

Following Operation Cryptosweep hundreds of investigations of initial coin offerings and crypto-related investment products were undertaken. Some bad actors were outed, and the amount of crypto related fraud has fallen in North America.

NASAA Warns on Potential Risks

At the end of December 2019, NASAA said that cryptocurrency investment is one of the top five investor threats for 2020. This is an opinion from a group who investigates crypto related fraud, so any views it has should be taken in that context.

NASAA’s president, Christopher Gerold commented:

“It is important for investors to understand what they are investing in and who they are investing with. Don’t fall for promises of guaranteed high returns with little to no risk or deals pitched with a false sense of urgency or limited availability.”

Gerold’s advice is no doubt relevant. It should be taken to heart by every investor, no matter if they are interested in cryptos, or another asset class. There are many unscrupulous actors out there, and many use the financial markets to make a living.