In a move that reaffirms its commitment to embracing cryptocurrencies while ensuring investor protection, the Canadian Securities Administrators (CSA) has publicly expressed its trust in the regulated futures market for crypto. The CSA, Canada’s chief financial authority, believes that the inclusion of crypto futures promotes greater price discovery and offers a robust mechanism for hedging against price fluctuations.
This announcement comes alongside the CSA’s issuance of guidance to assist fund managers in complying with legal requirements for investment funds holding crypto assets.
The CSA’s 15-page document serves to defend the presence of crypto exchange-traded funds (ETFs) in Canada, emphasizing their potential as effective tools for hedging against price volatility. It particularly highlights Bitcoin and Ether as markets that provide optimal support to public crypto asset funds, while also prioritizing investor protection. To safeguard investor interests, the CSA places restrictions on the proportion of illiquid assets within these funds, ensuring that assets can be promptly disposed of through open market channels.
Recognizing the evolving nature of the crypto space, the CSA expects investment funds to conduct thorough due diligence to determine whether the crypto assets they plan to invest in qualify as securities or derivatives. Additionally, the regulator emphasizes that investment managers are prohibited from lending assets that are not classified as securities.
The document also outlines minimum expectations for custody of crypto assets. These expectations include primary storage in cold wallets, asset segregation, transparency through blockchain visibility, insurance coverage against corporate crime, and regular reporting to fund auditors. By setting these standards, the CSA aims to establish a secure and transparent environment for investors participating in the crypto market.
Addressing the issue of crypto staking, the CSA clarified that it does not prohibit staking outright but urges fund managers to remain vigilant regarding the potential illiquidity of assets during staking activities. Compliance with the existing restrictions on illiquid assets remains a crucial requirement.
The spring of 2023 saw several major crypto exchanges suspending their operations in Canada due to regulatory concerns. In April, decentralized exchange dYdX announced the winding down of its services for Canadian users, followed by Binance and Bybit proactively withdrawing from the country in May. These actions reflected the shifting regulatory climate and underscored the importance of clear guidelines and regulatory support for crypto-related activities.
With its latest guidance, the CSA aims to foster a regulated and supportive environment for crypto investments in Canada. By striking a balance between investor protection and facilitating innovation in the crypto space, the CSA is positioning Canada as a favorable destination for crypto ETFs and other crypto-related financial products.
