On September 26, 2024, the Canadian Securities Administrators
(“CSA“) announced a further extension of the deadline
by when they expect registered crypto asset trading platforms
(“CTPs“) or CTPs operating in Canada
pursuant to a pre-registration undertaking
(“PRU“) to no longer allow Canadian
clients to buy or deposit (or enter into “crypto
contracts” to buy or deposit) value-referenced crypto assets
(“VRCAs“) that do not comply with the
previously enumerated terms and conditions mandated by the
regulators (the “VRCA Terms and
Conditions“). The CSA’s original deadline of
April 30, 2024 was first extended to October 31, 2024, and has now
been further extended to December 31, 2024. For
details on the VRCA Terms and Conditions, please see our bulletin
here. For more general background information
on the regulation of CTPs, please see our bulletin here.
The CSA define a VRCA as a “crypto asset that is designed
to maintain a stable value over time by referencing the value of a
fiat currency or any other value or right, or combination
thereof”. The CSA definition captures crypto assets commonly
referred to as “stablecoins” (USDC, Tether, etc.) as well
as other digital assets, including “wrapped tokens”
(WBTC, WETH, etc.).
A significant requirement of the VRCA Terms and Conditions is
that CTPs may only list a VRCA if the issuer of such VRCA has filed
an undertaking substantially in the form provided by the CSA.
Concerningly for the Canadian crypto industry, no VRCA is currently
in compliance with the VRCA Terms and Conditions and no issuer of a
VRCA has: (i) filed the required undertaking; or (ii) made any
public filings or announcements indicating their intention to file
the required undertaking or otherwise operate in compliance with
the VRCA Terms and Conditions. Stablecoins are important to the
operations of CTPs and the crypto market because they provide a
degree of price stability that other crypto and digital assets
generally do not. The delisting of all VRCAs that do not meet the
prescribed requirements is likely to be notably disruptive to CTPs
and the Canadian crypto industry.
However, extending the deadline for the second time suggests the
CSA is aware of the disruption that a forced de-listing of VRCAs
would have on the crypto industry in Canada. The CSA has included
in its announcements that they are committed to actively engaging
with CTPs and crypto industry participants on this matter and are
open to discussions on alternative regulatory approaches to the
regulation of VRCAs and to considering proposed exemptions relating
to specific use cases for VRCAs, including case-specific exemptions
for VRCAs that do not raise investor protection concerns.
The extension of the deadline to December 31, 2024 is the latest
update in a series of developments over the last two years
applicable to regulation of VRCAS by the Canadian securities
regulators. When considering the current state of VRCA regulation,
it may be helpful to look at the historical development of VRCA
regulation in Canada. These developments are summarized in the
below timeline, which describes certain key developments in the
CSA’s regulatory approach to VRCAs in Canada, including several
bankruptcies that led to CSA’s increased attention to and
oversight of CTPs. Also below is a glossary of certain terms used
by the CSA.
Notes to Timeline
- Thomson Reuters, “Crypto collapse intensifies as stablecoin Tether
slides below dollar peg” (May 12, 2022). - Canadian Securities Administrators, “CSA Business Plan” (2022).
- Thomson Reuters, “Crypto Hedge Fund Three Arrows Files for Chapter
15 Bankruptcy” (July 1, 2022) - Thomson Reuters, “Crypto lender Voyager Digital files for
bankruptcy” (July 5, 2022); Thomson Reuters, “Crypto lender Celsius Network reveals $1.19 bln
hole in bankruptcy filing“ - Canadian Securities Administrators, “Canadian securities regulators expect commitments
from crypto trading platforms pursuing registration“
(August 15, 2022). - Thomson Reuters, “Crypto exchange FTX files for bankruptcy as
wunderkind CEO exits” (November 11, 2022) - Thomson Reuters, “Crypto lender BlockFi files for bankruptcy, cites
FTX exposure” (November 29, 2022). - Canadian Securities Administrators, “CSA provides update to crypto trading platforms
operating in Canada” (December 12, 2022). - Thomson Reuters, “Crypto lending unit of Genesis files for U.S.
bankruptcy” (January 20, 2023). - Canadian Securities Administrators, “CSA Staff Notice 21-332 – Crypto Asset
Trading Platforms: Pre-Registration Undertakings – Changes to
Enhance Canadian Investor Protection” (February 22, 2023)
(“SN 21-332”). - Thomson Reuters “Major crypto coins stabilise after U.S. intervenes
on SVB collapse” (March 13, 2023) - Canadian Securities Administrators, “CSA Staff Notice 21-333 Crypto Asset Trading
Platforms: Terms and Conditions for Trading Value-Referenced Crypto
Assets with Clients” (October 5, 2023) (“SN
21-333”). Appendix A of SN 21-333 states the terms and
conditions that CTPs must abide by to obtain consent from the CSA
to allow the purchase or deposit of FBCAs. Appendix B contains an
undertaking the CTP must take. For more information on SN 21-333
and including a summary on how to obtain consent, and the VRCA
Terms and Conditions, see: CSA Provide Further Guidance on the Regulation of
Stablecoins – McMillan LLP. - Coindesk, “USDC Stablecoin Momentarily Depegs to $0.74 on
Binance” (January 3, 2024) - Canadian Securities Administrators, “Canadian securities regulators provide update on
interim approach to value-referenced crypto assets” (April
17, 2024).
| “CTP“ | Online applications or systems that bring buyers and sellers
together to facilitate transactions or trades. |
| “Enhanced PRU“ | An updated form of PRU that includes enhanced commitments for
CTPs that relate to several areas, including commitments on pledging, custody offering margin or credit, corporate governance, offering VRCAs and proprietary tokens. |
| “FBCA” or
“fiat-backed crypto asset” |
A subset of VRCAs that seek to replicate the value of a single
fiat currency, such as the U.S. or Canadian dollar, where the issuer has set aside an adequate reserve of assets in that fiat currency. |
| “PRU“ | An undertaking filed by the CTP with the principal regulator to
commit to certain investor-protection conditions while CTP registration is being processed. |
As the December 31st deadline looms, it is clear that we can
expect further developments in this space. We will continue to keep
industry participants apprised of further developments.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
© McMillan LLP 2024