CANADA Law and Practice Contributed by: Irbaz Wahab, Cloudhaus Law
2. Regulation 2.1 Regulators and International Alignment The Canadian Securities Administrators co-ordinate Canada’s 13 provincial and territorial securities regula- tors and drive harmonised securities policy, including in relation to crypto-asset trading platforms and public investment funds with crypto-asset exposure. CIRO oversees dealer conduct and registration expectations for CTPs within its remit, including compliance with its Digital Asset Custody Framework. FINTRAC adminis- ters the PCMLTFA and supervises AML/CTF compli- ance by reporting entities providing virtual currency services. OSFI leads prudential oversight for feder- ally regulated financial institutions and issues guid- ance addressing crypto-asset exposures. The Bank of Canada administers the RPAA framework and serves as the primary supervisor of stablecoin issuers under the Stablecoin Act. The CRA administers Canada’s tax laws as they relate to crypto-assets. On international alignment, Canada has taken an active approach to incorporating international standards. This includes implementing BCBS prudential standards through OSFI’s February 2025 guidance, adopting CARF through amendments to the Income Tax Act effective 1 January 2026, continued implementation of FATF recommendations including the travel rule for virtual currency transfers, and alignment with IOSCO’s policy recommendations for crypto and digital asset markets reflected in CSA Staff Notices 21-327, 21-329, 21-332 and 21-333. 2.2 Crypto-Asset Regulatory Frameworks Canada does not use a bespoke classification taxon- omy for crypto-assets. The CSA applies established securities law concepts, relying on the Howey-derived investment contract test adopted by the Supreme Court of Canada in Pacific Coast Coin Exchange v Ontario Securities Commission to determine whether a crypto-asset constitutes a security. Where a cryp- to-asset does not constitute a security or derivative, the CRA generally treats it as a commodity. CTPs that hold or have access to client crypto-assets are considered to be engaging in trading in securities or derivatives under CSA Staff Notice 21-327, regard- less of the nature of the underlying asset. Businesses must also register with FINTRAC as an MSB regard- less of whether securities laws apply. Retail investor
protections including suitability and KYC requirements apply broadly, while certain prospectus exemptions such as the accredited investor exemption under NI 45-106 are available for qualifying sophisticated investors. Looking ahead, the Stablecoin Act opera- tional framework is expected to come into full force by 2027, representing the most significant new regulatory development on the horizon. 2.3 Regulated Firms and Legal Wrappers The CSA’s final amendments to NI 81-102, effective 16 July 2025, establish the principal regulatory frame- work for public investment funds with exposure to crypto-assets. Public crypto-asset funds are permit- ted to invest only in Bitcoin and Ether and must use custodians regulated by Canadian or foreign financial authorities. Non-alternative mutual funds that are not crypto-asset funds may invest up to 10% of net asset value in crypto-asset specified derivatives listed on a recognised exchange; only Public Crypto Asset Funds may hold crypto-assets directly. Where investors access crypto-asset exposure through a fund wrap- per rather than directly, the fund itself becomes the regulated entity subject to NI 81-102 requirements, prospectus obligations and continuous disclosure requirements. The underlying crypto-asset activities do not change in character but the regulatory obli- gations shift to the fund level. A third phase of CSA reforms is expected to involve broader consultations towards a more comprehensive framework, potentially considering additional crypto-asset types and alterna- Canada has a limited but active market for crypto- asset issuances. Where a token constitutes a secu- rity under the investment contract test from Pacific Coast Coin Exchange, its distribution must comply with applicable prospectus requirements or rely on available exemptions under NI 45-106, including the accredited investor exemption and the offering mem- orandum exemption. Any person trading in, advising on, or managing portfolios of such tokens must be properly registered or have a valid exemption. The CSA Regulatory Sandbox has supported a number of token-related offerings through time-limited exemp- tive relief, allowing select blockchain-based issuances to proceed in a controlled manner. Canada does not tive custody models. 2.4 Token Issuance
167 CHAMBERS.COM
Powered by FlippingBook