The guide establishes clearer concepts about the world of cryptocurrencies, values, and exchanges.
The securities regulator in Canada, the Canadian Securities Administration (CSA), issued new guidance regarding crypto trade in the country.
In this way, the CSA explained new provisions in the “Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets”, published on January 16th.
In general, the agency explained the differences between trading platforms that make immediate delivery of crypto assets to its users and those that hold the transaction of crypto assets until the user makes a later request. These are some concepts that the guide should have defined.
This 2020, Canada shows to be one of the most interested and active countries in regulating these new assets.
Matt Burgoyne, head of the Cryptocurrency and Blockchain group at McLeod Law, announced the information. “The Canadian Securities Administrators released additional guidance on securities law and crypto exchanges today”, he said.
Security Laws Don’t Cover the Crypto Industry
The goal of the regulator was to clarify when crypto trades require a different regulation than the country’s current securities laws. This happens since these laws do not cover all instances in which cryptocurrencies can be used.
CSA analyzed crypto trading techniques on different platforms. In this way, the entity concluded that some of the platforms only provide their users with a contractual right or claim to a crypto asset, and do not immediately transfer it to a user.
Such crypto trading platforms are subject to securities legislation and thus fall under derivatives laws.
The guidance detailed: “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 by part of the platform”.
Are Cryptocurrencies Securities?
The CSA will not apply securities laws to crypto exchanges on which the underlying crypto asset is not a security or derivative, and crypto assets are delivered to a user immediately. However, the regulator pointed out that, in some cases, crypto assets are securities. As such, they should abide by securities laws.
The CSA Chair, Louis Morisset, stated: “The evolving landscape of the industry prompts us to clarify our regulatory framework to better support fintech businesses, seeking to offer innovative products, services, and applications in Canada”.
In late December 2019, the North American Securities Administrators Association (NASAA) said that cryptocurrency investment is among the top five investor threats for 2020.
NASAA’s President, Christopher Gerold talked about this aspect: “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”, he recommended.
In 2018, the Security Exchange Commission of the US (SEC) explained that Bitcoin and Ether were not considered as securities since they are not treated as securities or currencies but as a property. They are treated similarly to gold and oil but they are not centralized. However, most of the ICOs are securities centralized.
This piece of advice is important for all investors. Sometimes cryptocurrencies could be considered securities or not. But the most important part is to read about the subject and differentiate the characteristics of each case.
By María Rodríguez