In a recent development, the Canadian Securities Administrators (CSA), the chief financial authority of Canada, has affirmed its confidence in the regulated futures market for cryptocurrencies. The CSA’s guidance aims to assist fund managers in adhering to legal requirements for investment funds that hold crypto assets.
The 15-page document released by the CSA defends the viability of crypto exchange-traded funds (ETFs) in Canada, highlighting their ability to hedge against price fluctuations of specific crypto assets. The CSA particularly recognizes Bitcoin and Ether markets as offering optimal support for public crypto asset funds while ensuring investor protection. However, the regulator imposes restrictions on the inclusion of “illiquid assets,” which are assets that cannot be easily sold through open markets, within these funds.
With regards to the determination of whether crypto assets qualify as securities or derivatives, the CSA expects investment funds to conduct thorough due diligence. It also emphasizes that investment managers are prohibited from lending assets that are not classified as securities.
The document outlines the minimum expectations for the custody of crypto assets, including storing them in cold wallets, segregating assets, maintaining visibility on the blockchain, obtaining insurance against corporate crime, and providing reports to auditors. Additionally, the issue of crypto staking is addressed. While CSA does not outrightly prohibit staking, it urges fund managers to remain vigilant about potential illiquidity risks associated with staking and comply with restrictions related to illiquid assets.
Earlier this year, several major crypto exchanges halted their operations in Canada citing regulatory concerns. Notably, dYdX, a decentralized exchange, announced the winding down of its services for Canadian users, followed by Binance and Bybit withdrawing from the country in May.
Overall, the CSA’s guidance provides clarity on the regulatory framework for crypto staking, lending, and investment funds in Canada. By supporting regulated futures markets and imposing restrictions on illiquid assets, the regulator aims to foster a secure environment for investors while encouraging innovation in the crypto industry.