OrionConsulting.services
Toronto, Canada
Securities Compliance Consulting
CRYPTO ADVISORY SERVICES
A comprehensive approach
Crypto assets which are securities or derivatives traded on a platform are subject to securities and derivatives regulatory requirements. Bitcoin, as a crypto asset, is neither a security nor derivative in and of itself, but more akin to a commodity such as a currency or a precious metal. Nevertheless, bitcoin and other crypto assets that behave like commodities are subject to securities legislation when traded on a platform.
Following the events in the crypto market in late 2022, the Canadian Securities Administrators (CSA) is strengthening its approach to oversight of crypto trading platforms by expanding existing requirements for platforms operating in Canada.
APPLICATION OF SECURITIES LEGISLATION
Potential triggers
We advise platform operators on Canadian regulation of crypto asset trading platforms. To assess whether or not securities legislation may apply to a platform, we evaluate how trading and settlement occur with respect to the crypto asset, including:
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contractual right versus physical possession;
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option of delivery versus obligation of delivery;
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timing and method of delivery to the investor;
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ownership, possession and control retained by the platform versus the investor;
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post-delivery exposure to platform’s insolvency, fraud, and performance risks borne by the platform versus the investor; and
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other considerations in CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets.
We closely monitor the announcements from the Canadian Securities Administrators regarding the latest crypto asset trading platform decisions to advise crypto platform operators.
Following the events in the crypto market in late 2022, the Canadian Securities Administrators (CSA) is strengthening its approach to oversight of crypto trading platforms by expanding existing requirements for platforms operating in Canada.
PENDING REGULATORY REQUIREMENTS
Licensing a crypto platform
We advise platform operators on whether your platform may be subject to:
• application of marketplace requirements;
• application of dealer requirements;
• investment dealer registration and IIROC membership;
• recognition as an exchange; and
• derivatives requirements.
CRYPTO PLATFORM BEST PRACTICES
Transition to a regulated environment
We advise platform operators on best practices to address the risks of crypto asset trading platforms:
policies and procedures to establish an internal system of controls and supervision to manage business continuity risks, key personnel risks and regulatory compliance risks;
processes and controls to safeguard and segregate the investors’ crypto assets from those of the platform operator;
know-your-client and suitability assessments for investor onboarding, risk disclosures for retail investors who purchase complex, high risk and volatile crypto assets;
conflict of interest policies and procedures for platforms that act as market makers and trade as principal;
supervision by trade surveillance and market monitoring tools to detect and prevent abusive, manipulative and deceptive trading; and
investor protection through security controls to address data breach and cyberhacking risks, plus crypto custodians and insurance programs to mitigate risk of loss or theft of the investors’ crypto assets.