Canada To Regulate Crypto Exchanges

Wilfred Michael 

Wilfred Michael

News reporter

15 March 2019,
14:45
Canada To Regulate Crypto Exchanges

Whether it is administering medicine after death or implementing tough lessons from an ugly experience, financial regulators in Canada are finally making a move to regulate cryptocurrency exchanges.

On March 14, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) released a consultation paper containing a proposed regulatory framework for crypto exchanges and requesting input from the fintech community on the matter.

In a statement released alongside the consultation paper, CSA Chair Louis Morriset said the regulators decided to provide the framework after crypto exchange operators told them that they would welcome the rules to gain public trust and expand globally.

Before now, the country’s largest crypto exchange, QuadrigaCX has fallen into crisis, and possible liquidation after its founder Gerald Colten allegedly died without revealing the private keys to their cold wallet holding $190 million worth of cryptocurrency.

Overview of the Proposed Regulations for Crypto Exchanges in Canada

The CSA and IIROC outlined in the paper that crypto exchange platforms, depending on how they operate and the crypto assets they make available for trading, may be subject to securities and derivatives regulation such as:

  • Satisfying existing custody requirements and meeting other yet-to-be-determined standards specific to the custody of crypto assets.

  • Providing participants with a fair price especially when acting as a market maker.

  • Conducting market surveillance of trading activities on the exchange and enforcing market integrity rules.

  • Maintaining business continuity and disaster recovery plans to provide uninterrupted provision of key services (the situation currently faced by the QuadrigaCX exchange)

  • Disclosing potential conflicts of interest such as when an exchange trades against their participants as a market maker.

  • Securing limited insurance coverage for “hot wallets” or “cold wallets,” loss as a result of hacking, or loss from insider theft.

  • Reporting and settling trades through a clearing agency, especially for trading platforms and custodians.

The consultation paper is open to public contribution until May 15, 2019, and will likely see the introduction of new rules or amendment of the regulatory suggestions before the release of the final framework.

 

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