OSC approves crypto-backed lending

According to the ruling, the company sought approval to operate a “novel platform” that would allow both individuals and businesses to apply for loans (denominated in either Canadian or U.S. dollars), and to post either bitcoin or ether as collateral for those loans.

That collateral will be held by the company in special purpose vehicles (SPVs) for the duration of the loan, with terms ranging from three months to five years.

The Canadian regulators have said that these kinds of arrangements may fall under securities law on the basis that “a borrower’s contractual rights relating to the crypto asset collateral and related rights under the borrower’s agreement,” may meet the definition of a security.

The regulator granted the relief, subject to an array of conditions, including auditing, custody, recordkeeping, and regulatory reporting requirements. It will also require the firm to meet certain know-your-product (KYP), know-your-client (KYC), and disclosure obligations.

The firm doesn’t provide recommendations, advice, or conduct suitability assessments, but it does carry out “account appropriateness” evaluations to determine whether it’s appropriate for a client to enter a crypto-backed loan arrangement.

“The overall goal of the relief is to facilitate innovation in the Canadian capital markets, while upholding the regulatory mandate of promoting investor protection and fair and efficient capital markets,” the regulator said in its decision.

“This marks a major step toward integrating crypto into mainstream finance and building a truly global, compliance-focused crypto-backed lending ecosystem,” said Andrei Poliakov, founder and CEO of APX Lending, in a release.

The exemption will expire after three years.