In a significant move to regulate the burgeoning cryptocurrency market, the Canadian Securities Administrators (CSA) announced on January 18 a series of proposed amendments aimed at public investment funds dealing with crypto assets. These amendments, which seek to enhance investor protection and clarify the rapidly evolving digital asset space, are poised to reshape how mutual funds and other investment vehicles interact with cryptocurrencies.
Canada sets crypto asset listing requirements
The proposed regulations introduce specific constraints on the funds that can directly engage with crypto assets. Only alternative and non-redeemable investment funds will have the authority to purchase, sell, or hold cryptocurrencies directly. This move effectively bars standard mutual funds from direct crypto transactions, allowing them only to gain crypto exposure through investments in the aforementioned fund types.
The amendments also set stringent standards for the custodianship of crypto assets. Key among these is the requirement for assets to be stored in cold wallets, considered a safer option compared to their online counterparts, and for these assets to be adequately insured. Additionally, these custodial arrangements must undergo an annual audit by a public accountant, ensuring high scrutiny and oversight.
Another crucial aspect of the proposed amendments is the requirement for crypto assets to be listed on an exchange recognized by a Canadian securities regulatory authority. This condition adds an extra layer of legitimacy to the assets in question and ensures they are fungible, a critical feature for ease of trading and valuation.
These changes are set to be incorporated into National Instrument 81-102 Investment Funds and its Companion Policy. National Instruments are regulations or orders adopted across Canadian provinces and territories, providing a harmonized regulatory approach. The CSA’s initiative reflects a conscious effort to integrate crypto assets into Canada’s broader financial regulatory framework, balancing innovation with investor protection.
Ongoing consultation and future regulatory developments
The CSA’s announcement marks the beginning of a 90-day public consultation period. This period allows stakeholders and the public to provide feedback on the proposed amendments. Following this, a consultation paper will be drafted, laying the groundwork for a more extensive regulatory framework for crypto assets in Canada. This process underscores the CSA’s commitment to a collaborative and transparent approach in shaping the future of crypto regulation.
The proposed amendments are part of a broader project initiated in July to address the complexities and risks associated with crypto assets. This move comes from Canada’s introduction of spot Bitcoin exchange-traded funds in 2021, further indicating the country’s progressive stance on cryptocurrency integration into mainstream finance.