[co-author: Duncan Pardoe - Articling Student]

On April 12, 2023, the Canadian Securities Administrators (CSA) announced that certain unregistered crypto-asset trading platforms (CTPs) operating in Canada had filed an enhanced pre-registration undertaking (PRU) with their principal regulator as required by, and following the publication of, CSA Staff Notice 21-332 (SN 21-332). As we discussed in our recent blog post, Canadian Securities Regulators Announce Increased Oversight on Crypto-Asset Trading Platforms and Clarify Stablecoin Guidance, SN 21-332 introduced new regulatory requirements that CTPs must satisfy to continue operating in Canada pending their registration, and provided clarifying guidance with respect to whether value-referenced crypto-assets (commonly referred to as "stablecoins") constitute securities and/or derivatives.

This latest announcement from the CSA follows recent news reports and our own market observations that several CTPs have recently decided to leave Canada, in some cases noting that SN 21-332 at least partially influenced the decision to exit the Canadian market. Some exiting CTPs have communicated publicly that they continue to assess the Canadian regulatory landscape and may consider re-entering the Canadian market in the future. However, given the general direction of regulatory change in this area, we would anticipate a low likelihood of re-entry from unregistered CTPs that leave the Canadian market.

We are seeing varying responses to the stablecoin guidance in SN 21-332 from market participants continuing to operate in Canada, with some CTPs having delisted stablecoins that were previously being offered to Canadians and other CTPs taking a "wait and see" approach. Several CTPs that have recently delisted certain stablecoins, appear to be doing so specifically in an effort to comply with SN 21-332 and the terms of their individualized enhanced PRUs. Despite the varying responses from market participants thus far, all CTPs with operations in Canada should consider the stablecoin guidance in SN 21-332 and incorporate this guidance into the policies and procedures it uses to determine which crypto assets it will list and offer to Canadian clients.

Key Takeaways

SN 21-332 has changed the crypto-asset regulatory landscape in Canada and CTPs currently operating in Canada should review their business models, notably including their policies and procedures used to determine whether a crypto asset is a security and/or derivative, and seek legal advice with respect to the regulatory obligations applicable to their Canadian operations.