New Canadian rules for crypto trading platforms leave little room for stablecoins

The Canadian Securities Administrators has tightened registration requirements for crypto exchanges for the second time, after the disorder seen in 2022.

The Canadian Securities Administrators (CSA) published a notice on Feb. 22 describing new commitments it expects from crypto asset trading platforms (CTPs) seeking registration in Canada. The CTPs will enter into a new version of preregistration undertakings (PRUs), which are legally binding documents. Registered CTPs will be contacted by their principal regulators about compliance with the new expectations. 

The new commitments represent investor protections in light of the spate of CTP insolvencies that occurred in 2022, the CSA wrote. The new commitments touch on issues that include segregation of assets, leverage, determination of capital, transparency and others. The notice devoted by far the most space to:

“A prohibition on the part of the CTP in respect of clients buying or depositing Value- Referenced Crypto Assets (commonly referred to as stablecoins) through crypto contracts without the prior written consent of the CSA.”

The notice explained that “CTPs are prohibited from permitting Canadian clients to enter into crypto contracts to buy and sell any crypto asset that is itself a security and/or a derivative. […] Staff are of the view that Fiat-Backed Crypto Assets generally meet the definition of ‘security’ and/or would meet the definition of “derivative” in several jurisdictions.” The CSA “would not expect to provide consent “ for other types of stablecoin, such as algorithmic stablecoin, either.

Nonetheless, exceptions can be made in writing by the CSA. The notice said, “We recognize that VRCAs may be […] as an on-ramp to deposit assets with the CTP, for the trading of other crypto assets, as a store of value during times of volatility in the crypto asset markets or to avoid converting their crypto assets into fiat currency, or […] as a means of payment.”

Coinsquare, a CTP registered in Canada, listed USD Coin stablecoins among its 40 offerings at the time of writing.

The CSA is an umbrella organization of Canadian provincial regulators. Its Feb. 22 notice was the second update to a document that was introduced in August.