It’s a bird! It’s a plane! It’s a security in the form of a digital asset!

On April 3, 2019, the U.S. Securities and Exchange Commission (the “SEC“) released guidance outlining whether a digital asset is a security, and thus subject to scope of federal securities laws (the “Framework“). This guidance was introduced to assist participants in the digital asset space with determining whether federal securities laws are applicable to the offering and sale of such assets. The application of securities laws to digital assets will increase obligatory disclosure requirements and compliance costs for issuers in this space.

Although this guidance was issued within the context of the U.S. securities laws, the discussion surrounding legislation of digital assets crosses jurisdictional boundaries.

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Securities regulators provide guidance on coin and token offerings

On June 11, 2018, the Canadian Securities Administrators (CSA) released CSA Staff Notice 46-308 – Securities Law Implications for Offerings of Tokens (Notice) providing guidance on the applicability of securities laws to offerings of coins or tokens, including those commonly referred to as “utility tokens”.1

While the tone of the Notice suggests that the CSA considers most crypto-coins and tokens to be securities, it includes guidance as to when they might constitute mere utility tokens not subject to securities laws. This note discusses and provides context on the key points in the Notice, including:

  1. The existing “investment contract” analysis will often guide regulators in determining whether an offering involves a security, i.e., they will ask whether it entails an investment of money in a common enterprise, with profits significantly attributable to the efforts of others.
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Competition Bureau releases draft FinTech recommendations for policymakers

On November 6, 2017, the Competition Bureau (the “Bureau”) published its report on the Canadian financial services sector and FinTech. The report examined a wide range of FinTech activities and focused heavily on retail payments and retail payments systems.

The Bureau observed that, while FinTech has a real potential to penetrate the retail payments space in meaningful ways, it identified a variety of barriers to entry, some attributable to regulation, and some not.

Those barriers not attributable to regulation include:

  • Canadian consumer behaviour (including a high degree of trust in existing payment providers and methods) and market maturity.
  • The impact of network effects and the need for economies of scale: a critical mass of users is required for a new retail payment system or method to gain acceptance in a market.
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