Regulators seek pre-registration pledges from crypto-trading platforms

In an effort to provide some measure of protection to retail investors dabbling in crypto, the Canadian Securities Administrators (CSA) are now requiring firms to pledge allegiance to operational terms and conditions while their registration applications are under regulatory review.

Crypto trading platforms will have to provide the regulators with “pre-registration undertakings” in order to continue operating while regulators consider their formal applications, the CSA said Monday.

“By giving these undertakings, crypto-trading platforms agree to comply with terms and conditions that address investor protection concerns and are consistent with requirements currently applicable to registered platforms,” the CSA said in a release.

These undertakings will be made public. The first ones — filed by Coinsquare Capital Markets Ltd. and Crypto.com earlier this month — were published Monday by the Ontario Securities Commission (OSC).

Those filings include promises by the firms to adhere to conditions regarding conflicts of interest, the sorts of products they will deal in, restrictions on clients’ use of leverage, account opening requirements, investment limits, and requirements around advertising and social media use.

It also requires that firms pledge to deal with clients fairly and honestly, and not to offer recommendations or advice.

The CSA said provincial regulators are now in discussions with a number of other crypto-trading platforms about providing similar promises.

Firms that don’t provide these undertakings, or provide them but then don’t follow them, face possible regulatory action, the CSA said.

So far, various provincial regulators have granted relief to eight crypto-trading platforms. The OSC is pursuing enforcement action against several others that didn’t adhere to a warning issued in March 2021 advising firms operating in Ontario to start the registration process or face regulatory action.

The new policy of requiring undertakings from aspiring registrants gives retail investors some protection while regulators continue to wade through the registration review process and set final requirements on specific firms.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.