On June 13, 2019, the Canadian Securities Administrators (“CSA”), a national organization committed to harmonizing securities regulation across Canada, published the CSA Business Plan 2019-2022 (“Plan”) outlining initiatives to better assist participants in the capital market industry. Most notably, the Plan identifies as its Strategic Goal #6 “Respond[ing] to technology-related emerging regulatory issues”. This includes the goal of increasing Canadians’ awareness of policy issues pertaining to cryptocurrency in the context of emerging technology.
Emerging technologies often create regulatory challenges because of unknown implications of the technology itself, coupled with the lack of regulatory clarity. Market participants are often affected by shifts in market conditions, investor demographics, technological innovations, and globalization. In response to these challenges, the CSA recognized that the Canadian securities regulatory system must keep in pace with the evolving nature of capital markets.
Under the Plan, the CSA intends to consider the implications of emerging technologies, including distributed ledger technology (“DLT”). Blockchain technology, as a form of DLT, is often used in the management system in which cryptocurrencies are exchanged within. As such, the CSA recognized that DLT has the potential to transform the landscape of the financial industry given the prevalence of crypto-assets. As stated in its Plan, the CSA has said it will consider possible changes to adapt the current regulatory framework to address the unique challenges” of crypto-assets falling within the CSA jurisdiction, including
- Propose a regulatory regime for crypto-asset trading platforms;
- Consider custodial requirements in relation to crypto-assets; and
- Consider the capital raising and issues that may be unique to aspects of blockchain-based securities
Following the publication of the Plan, it reamins to be seen (1) whether the CSA can efficiently develop a regulatory regime that is capable of keeping pace with the rate of change of such emerging technologies; (2) whether the scope of regulation is sufficiently wide to capture the various industries that may be impacted by DLT; and (3) given the global operation of various platforms, how the CSA will address any jurisdictional issues.
Months prior to the release of the Plan, the CSA and the Investment Industry Regulatory Organization of Canada (IIROC) jointly published a consultation paper proposing a regulatory framework for crypto-asset trading platforms.
Prior to this, the CSA’s Regulatory Sandbox, part of the CSA’s 2016-2019 Business Plan, was launched, allowing firms to register and/or obtain exemptive relief from securities laws requirements, under a faster and more flexible process than through a standard application, in order to test their products, services and applications throughout the Canadian market on a time limited basis.
However, crypto-asset trading platforms operate differently than existing securities exchange platforms in capital markets and as such, will require a different approach. Depending on the structure and operation of certain platforms, the novelty of such technology may create risks and other features that may not be captured by existing securities legislation. As such, the CSA and IIROC recognized that a tailored regulatory framework is still needed for platform operators to address these unknown features and risks.
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