Legal Knowledge

Canada Cryptocurrency Regulations

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Canada is a nation with an increasingly developed financial technology sector and is open to blockchain and crypto-native assets. In April of 2021, three Ethereum exchange-traded funds (ETF) received approval from the Ontario Securities Commission (OSC) for trading on the Toronto Stock Exchange, just two months after the first Bitcoin ETF was launched in the country.

The nation’s regulations on crypto are robust and touch on Anti-Money Laundering/Countering the Financing of Terrorism, ICO/STO securities laws and more. Canada’s Financial Intelligence Unit, FINTRAC, has oversight over crypto-asset trading platforms (CTPs) which are regulated as Money Service Businesses (MSBs) under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR).

Although crypto-assets are legal to be traded, created and received/sent by individuals and corporations in Canada, the nation has no provincial or federal deposit insurance so far.

Crypto Regulations Canada: Licencing of VASPs

Ethereum

Ethereum

On March 2021, two regulatory agencies, the Canadian Securities Administrators (CSA) and Investment Industry Regulatory Organization of Canada (IIROC), issued a notice on crypto-asset trading platforms, the Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements.

The notice stipulates that if ‘Crypto Contracts’ are being solicited to individuals on margin or leverage trading, these ‘Dealer Platforms’ will be expected to be registered and become members of the IIROC.

The regulatory note outlines that in the jurisdiction of Québec, these platforms that offer derivatives must register as derivatives dealers under the Québec Derivatives Act (QDA). Dealer Platforms that also create and market derivatives must be qualified by the Autorité des marchés financiers (AMF) before derivatives are offered to the public.

Existing registered entities such as financial institutions and investment funds that are “introducing crypto asset products and/or services are required to report changes in their business activities to their principal regulator.”

Crypto Regulations Canada: Financial Regulators

Cryptocurrency

Cryptocurrency

Canada has several financial regulators for various financial activities such as securities issuance, securities trading, tax collection, etc.

  • FINTRAC – the Financial Transactions and Reports Analysis Centre of Canada is Canada’s financial intelligence agency responsible for investigating financial crime. Founded in 2000, FINTRAC has oversight of all crypto-asset firms.
  • CRA – the Canadian Revenue Agency is Canada’s primary tax collection authority.
  • CSA – the Canadian Securities Administrators is an umbrella organization of the nation’s various securities regulators (provincial and territorial) that seeks to regulate Canada’s capital markets.
  • IIROC – the Investment Industry Regulatory Organization of Canada is a self-regulatory and non-profit organization that sets the industry standards for all investment dealers and debt and equity trading.

Crypto Regulations Canada: Reporting to Fintrac and Record-Keeping

Various reports must be submitted to FINTRAC through the Financial Intelligence Unit’s web reporting system. These include; Electronic Funds Transfer Report (EFTR), Suspicious Transaction Report (STR), Terrorist Property Report (TPR), Large Cash Transaction Report (LCTR), Large Virtual Currency Transaction Report (LVCTR).
The Virtual Asset Service Provider must retain a copy of every report made to FINTRAC.
Repeated failure to follow FINTRAC’s proper reporting – and general compliance – requirements will result in financial, and in some egregious cases, criminal penalties.

Crypto Regulations Canada: Know Your Client

On March 23, 2021, FINTRAC updated its Know Your Customer (KYC) guidance. From June 1, 2021, it is a requirement as a Money Service Business operating in Canada to have in place processes that enable the firm to carry out effective KYC and that those processes must be in line with the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR).

KYC for VASPs in Canada means verifying the client identities in the ensuing circumstances if the VASP has not done so prior and maintained the relevant records for clients that process:

  • 10,000 CAD or more in crypto-assets received in a given 24 hour timeframe
  • 3,000 CAD or more in FX transactions
  • 1,000 CAD or more in crypto-asset transfers, capital transmissions, exchange of crypto-assets (including both crypto-to-crypto and fiat-to-crypto), crypto-asset remittance to a beneficiary and electronic funds transfers

Some organizations are exempt from KYC in Canada, such as public entities, subsidiaries of public entities, or those with a minimum of 75 million CAD of net assets on their last audited balance sheets and if the entity is a publicly-traded company on any Canadian stock exchange.
KYC does not end for some clients after they have become onboarded to the firm’s client base. KYC additionally entails conducting Enhanced Due Diligence (EDD) such as ongoing transaction monitoring of high-risk clients such as Politically Exposed Persons (PEPs) and high net worth individuals (HNWIs).

 

Let us know in the comments below if you think about investing in cryptocurrency in Canada.

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