Canada’s upgraded crypto rulebook does not leave much room for stablecoins

Updated: 23 February 2023

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So far, countries around the world that made attempts to regulate crypto chose one of two approaches to doing it. Some have opted to embrace the industry, while others are limiting it. The first approach is popular in Asia, where it is known as the “regulate to protect” approach, while the second one is primarily used in the West, revolving around regulation by enforcement.

Of course, the US is the primary example of regulation by enforcement, but it seems that Canada is not too far back, either. In fact, the country’s CSA (Canadian Securities Administrators) published a notice this Wednesday, February 22nd, describing new commitments expected from crypto exchanges that wish to register and operate in Canada. This is the second update that the regulator has made to a document that was originally issued last August.

#cryptocurrency #crypto #cryptonews
Canadian Securities Administrators may intend to tighten rules for cryptocurrency exchanges later this month. pic.twitter.com/wSytpVZnFq

— Cryptocurrencies Agency (@alsayedomar1252) February 17, 2023

The CSA issues new exchange requirements

According to new rules, crypto asset trading platforms (CTPs) willhave to enter into a new version of preregistration undertakings, or PRUs. These are legally binding documents, after which the the regulators will contact the CTPs regarding compliance with new expectations.

The commitments come as part of an investor protection effort, due to all the issues that happened in 2022. Issues like the collapse of FTX and a number of businesses tied to it, as well as the collapse of the Terra blockchain before it.

In this regard, people familiar with those government plans explained that the recent scams that have taken the digital currency market as an outlet have accelerated the steps of the concerned authorities in Canada to regulate the digital currency market as a whole.

— Cryptocurrencies Agency (@alsayedomar1252) February 17, 2023

With that said, the new commitments touch on issues related to leverage, segregation of assets, determination of capital, transparency, and more. The main focus on the notice seems to be on “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.”

Stablecoins might be available with the regulator’s permission

The document went on to explain that CTPs are not allowed to offer Canadians to enter into crypto contracts involving buying or selling of any crypto asset that is considered a security or a derivative. According to Canadian definition of security, stablecoins do fall under both categories. They are considered securities across the country, and also derivatives in some jurisdictions. While the focus is primarily on fiat-backed stablecoins, the regulator also included algorithmic stablecoins.

The regulator added that some exceptions can be made, assuming that the CSA providise a written permission to offer a specific asset. They ecognized that stablecoins can be useful for accessing other crypt assets or acting as a store of value during volatile periods for those who do not wish to convert their coins into fiat, or even as a means of payment.

Stablecoins like USDC and DAI are already listed on Coinsquare, which is a registered CTP. Apart from these two, the company also has around 40 other assets available for trading.

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