CSA shares stance on crypto

The Canadian Securities Administrators (CSA), the primary financial authority in Canada, has expressed its trust in the regulated futures market for cryptocurrencies, highlighting its role in facilitating greater price discovery. Aside from the United States, Canada is home to several crypto exchange-traded funds (ETFs).

On July 6, the CSA released guidance aimed at assisting fund managers in meeting legal requirements for investment funds that hold crypto assets. In a 15-page document, the CSA defends the presence of crypto ETFs in Canada, emphasising that ETFs possess the necessary tools to hedge against price fluctuations of specific crypto assets.

The CSA specifically mentions the markets for Bitcoin and Ether as providing strong support for public crypto asset funds without compromising investor protection. The guidance also sets limits on the proportion of “illiquid assets” within the funds, referring to assets that cannot be easily sold directly on the open market.

The regulator expects investment funds to conduct thorough due diligence to determine whether the crypto assets they plan to invest in qualify as securities or derivatives. Additionally, investment managers are reminded that lending assets that are not securities is prohibited.

The document also outlines the minimum expectations for the custody of crypto assets. These expectations include primary storage in cold wallets, asset segregation, transparency through blockchain visibility, insurance against corporate crime, and the provision of reports to fund auditors.

The issue of crypto staking is also addressed. The CSA confirms that it does not explicitly prohibit staking but advises fund managers to remain vigilant regarding the liquidity of crypto assets during staking and ensure compliance with the restrictions on illiquidity.

In the spring of 2023, some major crypto exchanges suspended their operations in Canada due to the regulatory environment. Notably, decentralised exchange dYdX announced the winding down of its services for Canadian users in April, while Binance and another platform, Bybit, proactively withdrew from the country in May.