Amid a clamour for regulation from aspiring cryptoasset trading platforms, Canadian securities regulators are proposing a new framework that aims to enable industry innovation, while also addressing the novel risks that these ventures may represent.
In a joint consultation paper published Thursday, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) set out a proposed regulatory framework for cryptoasset trading platforms that is based on the existing rules for conventional securities trading venues, but would also be tailored to the unique characteristics of the cryptoasset market.
According to the paper, the CSA is already engaged in talks with several platforms as part of its “regulatory sandbox” program, and these firms are seeking clarity from the regulators.
“We have heard directly from platform operators and their advisers that a regulatory framework is welcome, as they seek to build consumer confidence and expand their businesses across Canada and globally,” the paper said.
The paper envisions a regulatory framework for cryptoasset traders that is based on the existing rules for securities markets, coupled with requirements for securities dealers (platforms would be expected to join IIROC too) modified to reflect the fundamental distinguishing features of the cryptoasset market.
The paper sets out a number of areas where the regulators believe the requirements for cryptoasset platforms may have to be somewhat different, including requirements for custody and asset verification, price discovery, trading surveillance, clearing and settlement, insurance, systems and business continuity planning, and conflicts of interest.
“We must adapt to innovation, and provide clarity to the market about how regulatory requirements might best be tailored and applied to these unique business models, while maintaining investor protection,” said Andrew Kriegler, president and CEO of IIROC, in the statement.
While the focus on the CSA/IIROC paper is on developing requirements for firms seeking to operate in the securities world, the regulators also point out that some platforms may, instead, fall under derivatives regulation.
The CSA has indicated that it also plans to consult on a framework for markets that trade over-the-counter derivatives, including derivatives based on cryptoassets.
In the meantime, the CSA has said it “may be appropriate” for these sorts of firms to face similar requirements as the rules being developed by securities regulators. However, these requirements “may need to be specifically tailored to reflect the requirements that currently apply to derivatives,” it said.
The deadline for feedback on the regulators’ initial consultation is May 15.