Wednesday, 08 July 2020

Canadian regulators propose framework to govern cryptocurrency exchanges, protect users

Canadian regulators are proposing a framework to govern cryptocurrency exchanges and prevent users of such trading platforms from losing their funds.

The Canadian Securities Administrators (CSA) – an umbrella organization of provincial securities regulators – and the Investment Industry Regulatory Organization of Canada (IIROC) are asking industry participants for comments on the proposed regulations by May 15.

Under the proposed rules, some exchanges will be required to register as marketplaces, others as investment dealers and some as both – all depending on how the platform operates. Derivatives rules may also apply.

Currently there are no cryptocurrency trading platforms recognized as an exchange or a marketplace or dealer in Canada, according to the joint consultation paper by the CSA and IIROC.

IIROC and the CSA are also considering the ways in which current marketplace and investment dealer rules should be modified to address the nuances of how cryptocurrency exchanges – the online marketplaces where people go to buy and sell virtual currencies such as bitcoin and ether – operate.

For example, because private keys are vital to the safeguarding of cryptocurrency assets and many platforms have custody over customer funds, regulators will be assessing whether platforms are adequately safeguarding those keys.

The regulatory regime comes after QuadrigaCX, once Canada’s largest cryptocurrency exchange, was granted creditor protection last month after its CEO died while travelling in India last December. Quadriga’s customers are collectively owed $250 million in cash and cryptocurrency - $180-million of which is missing.

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