Crypto Exchanges 'Trial' Period in Canada Comes to an End
Local authorities have reminded the exchanges that it is time to get their paperwork done and register as full-fledged investment dealers.
Canadian regulators have reminded crypto exchanges that they are running out of time to complete the registration process as fully authorized investment dealers. An interim period started in 2021 and was expected to last for two years. It allowed Crypto Trading Platforms (CTPs) to operate as restricted dealers while working on registering and obtaining the regulator's membership. Now, the period is coming to an end, and no new dates were specified.
“Given the time that has passed, CSA (the Canadian Securities Administrators) members expect CTPs (crypto trading platforms) to have carefully reviewed and understood the requirements to become investment dealers and CIRO members, and be actively engaged with CIRO on their applications. Moving forward, CSA members do not intend to continue with the interim approach,” - says the announcement.
In 2021, CSA and the Investment Industry Regulatory Organization of Canada (now CIRO) published guidance on the securities law requirements that apply to CTPs. CIRO is a national self-regulatory organization that oversees all investment dealers, including those involved in activities related to crypto-assets, that are deemed securities or derivatives.
In 2023, the CSA released updated guidance for the local crypto industry with enhanced investor protection commitments. All companies were obliged to start a pre-registration process while working on their actual registrations.
Local crypto exchange Coinsquare was the first CTP to gain membership in 2022. Wealthsimple Investments and Fidelity Clearing Canada later joined the list. Currently, only one major global crypto exchange is authorized - and only as a restricted dealer - to do business in Canada: Coinbase. The company secured the authorization this April through a local subsidiary. This summer, Coinbase also launched its Stand With Crypto initiative in the country which is its second-largest hub after the U.S. with nearly 200 full-time local employees.
The country's development and adoption of the industry are controversial. The government has a generally positive stance on crypto, and local authorities aren’t ‘hunting’ crypto-related businesses like their neighbors do.
Still, with all the exemptions granted to crypto exchanges, the regulators don’t turn the blind eye on their activity. Recently, a provincial regulator, the British Columbia Securities Commission, released its findings and suggested sanctions on the case of a local cryptocurrency trading platform ezBtc, which misappropriated $9.5 million of users’ funds in 2019.
Crypto trading is allowed in Canada, even though cryptocurrencies are not considered legal tender. The government has been exploring the possibility of issuing a CBDC since 2020. Canada was also a pioneer in approving crypto ETFs in 2021.
Even though businesses and individuals can legally use crypto, most opt for cash and cards. Cryptocurrencies remain the least favored among alternative payment methods. Surprisingly, even though the general level of adoption is relatively low, the country hosts the second-largest network of crypto ATMs. According to the latest update from the Bank of Canada, even during the latest crypto market downturn, 10% of Canadians held Bitcoin.
Given the rise in global crypto market sentiment and friendly legislation, Canada is a high-potential market for crypto exchanges. Thus, we expect other major players to return to the country. For example, Binance, which departed from the Canadian market in 2023 alongside OKX and Bybit due to the tightening of stablecoin regulation and registration requirements, might now change its mind as part of its compliance strategy.
In an interview with Observers.com, experts from the Canadian compliance firm AML Incubator shared their opinions on the local regulatory environment. Based on their outlook on the global adoption rate of cryptocurrency as an investment class and Canada’s favorable legislation, they agree it is highly probable that key players like Binance or Bybit will return to Canada in the coming months or years.
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