March 16, 2019

Canada Starts the Formulation of Blockchain and Cryptocurrency Regulations

In a consultation paper jointly published by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) entitled Proposal Framework for Crypto-Asset Trading Platforms, the government asserts their plan to have "a set of tailored regulatory requirements" to address both the novel features and the risks associated with the operation of platforms that facilitate the buying, selling, and transferring of crypto assets.

The document highlights the emergence and growth of digital assets, the innovation of distributed ledger technology (DLT), and the transformation of the financial industry. All these events have created a heightened interest not just among individuals but also among investors, technology disruptors, governments, and other economic players. Despite the growth of the blockchain technology and the expansion of cryptocurrency use, there remains a gap in the regulatory role of governments which potentially endangers the safety and security of digital assets both at the individual and entity levels.

The paper also offers a Proposed Platform Framework that could guide the creation and implementation of laws that pertain to the regulation of industry players. Such platforms may have marketplace and dealer functions like operating a cryptocurrency exchange, facilitating the listing of digital coins, taking custody of investment assets, and enabling the clearing of trades.

Both the CSA and IIROC desire to get reflective and appropriate feedback from blockchain technology experts, cryptocurrency players, and other regulatory agencies before the finalization of policies that would cover the registration, operations, and legal characterization of various DLT platforms in the country. Among those that they need help with are the aspects of asset custody and verification, crypto price determination, trading surveillance, business continuity planning, crypto investment insurance, and trade clearing and settlement.

Although the appropriateness of government regulation on DLT industry and cryptocurrency trade still remains to be contested, the effort of CSA and IIROC to listen to the feedback of different players, to acknowledge blockchain benefits, and to address the risks associated with it are definitely commendable.