Canadian Regulator Bans Margin and Leverage Crypto Trading

https://www.kitco.com/news/2022-12-13/Canadian-regulator-bans-margin-and-leverage-crypto-trading-and-says-stablecoins-are-considered-securities.html

The Canadian Securities Administrators (CSA), Canada’s financial regulator, has announced that it intends to strengthen its oversight of cryptocurrency exchanges by expanding the existing requirements for platforms that operate in the country.

As part of the new beefed-up requirements, the CSA has instituted a ban on exchanges offering margin or leverage trading to any Canadian client and made it a requirement that platforms hold all Canadian clients’ assets “with an appropriate custodian and segregate these assets from the platform’s proprietary business.”

Custodians will be deemed qualified if they are regulated by a financial regulator in Canada, the U.S., or a similar jurisdiction with a supervisory regime for conduct and financial regulation, the release said.

For the purposes of these securities regulations, “Platforms located outside of Canada that are accessible by Canadians are regarded as operating in Canada,” the CSA said.

The financial regulator also highlighted that it continues to monitor and assess the presence and role of stablecoins in Canadian capital markets. As it currently stands, the CSA holds the view that stablecoins may constitute securities and/or derivatives, and should be regulated as such.

“Crypto trading platforms that are registered or that have entered into a pre-registration undertaking are reminded that they are prohibited from permitting Canadian clients to trade, or obtain exposure to, any crypto asset that is itself a security and/or a derivative,” the statement said. “Crypto trading platforms are expected to have established policies and procedures to determine whether each crypto asset they provide exposure to is a security and/or derivative.

The CSA went on to note that even if the outlined measures are adopted, crypto assets and financial products related to crypto assets should be considered high-risk investments.

“These risks could result from, among other things, crypto trading platform non-compliance with registration terms and conditions or undertakings, interconnectedness within the crypto sector, insolvency, hacks, price volatility and uncertain value propositions for individual assets,” the release said.

Due to these factors, the CSA urged caution among Canadian investors and recommended that they seek advice from a registered investment adviser before investing in crypto. If they subsequently choose to move forward with crypto investing, the CSA recommended that they use a platform that is registered with CSA members.