Canadian Regulatory Landscape and Emergence of Cryptocurrencies

Canadian Regulatory Landscape and Emergence of Cryptocurrencies

With the ever-growing presence and mainstream acceptance that cryptocurrencies and digital assets have been gaining around the world over the past few years, it’s important to understand Canada’s position on the matter.

In fact, not only can you find over 20 exchanges in the country, you can now also find over 740+ Crypto-ATMs with high concentrations in the cities of Montreal (100+), Toronto (260+) and Vancouver (80+), showing not only acceptance from end-users but also interest from governing entities.

But it’s important to note that as it stands, although exchanges are being regulated and commercial acceptance has been growing, the fight for mainstream adoption remains hard-fought given the recognized flaws. As a global leader in innovation, Canada’s position on Crypto’s, their exchanges, regulations and legislations strives for proactiveness in the face of change; But erring for caution as to not succumb to a misrepresented utopia.

Federal Plans and Position

First and foremost, it’s important to understand that there are currently no plans to establish a digital currency as legal tender in Canada. Instead, the government errs on the side of caution and is letting provincial authorities define their integration and presence on the market. The Bank of Canada states in a 2019 Report:

“It is essential to make progress on the many unanswered questions related to whether the central bank should issue a CBDC (Central Bank Digital Currency), before some inadequate private digital currency gains traction as the de facto currency of an economy.”

To this effect, the Bank of Canada presented in June 2017 Project Jasper, the report concluded that “A pure stand-alone DLT wholesale payment system is unlikely to match the net benefits of a centralized wholesale payment system.”

So although showing a willingness to eventually move towards digital currency, it’s important for regulatory bodies to be informed and in-tune with the upcoming changes in order to ensure their safety, sustainability and real-world application.

First Canadian Legislation on Crypto

One of the most notable legislation to that effect was put forward as part of Bill C-31 in 2014 which amended the “Proceeds of Crime (Money Laundering) and Terrorist Financing Act” to now legislate over digital currency transactions as a matter of anti-money laundering; Making Canada the world’s first country to integrate digital currencies as part of legislation.

So currently, cryptocurrency exchanges aren’t seen as such yet, but as an MSB (Money Services Business), their product (the crypto’s which their platforms trade) as commodities for revenue and taxation purposes; and as securities for market oversight.

A Proposed Framework

In early 2019, the Canadian Securities Administrators (CSA) in partnership with the Investment Industry Regulatory Organization of Canada (IIROC) published a consultation paper titled “Proposed Framework for Crypto-Asset Trading Platforms”. The paper sought to explain “how regulatory requirements may be tailored for crypto-asset trading platforms operating in Canada”. – Ontario Securities Commission

The community’s response varied but emphasized on the main contention point: The establishment of a system that would equally favour new-age and traditional structures. Some industry stakeholders proposing the formation of a “Task Force” composed of industry experts and government officials; Others stating that regulation should only stem from natural market evolution; leaving the end-users and trustworthy businesses to connect organically while dishonesty outs malicious entities.

And the CSA has been delving into the issues outlined by the community; recently (01.2020) publishing staff notice 21-327 titled “Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets” in an effort to address the community’s concerns brought up by the initial framework; Namely outlining the identification of what constitutes a security and how legislation would, or not, apply based on the immediacy of delivery; which is defined and detailed in the full report.

Developments in Ontario with the OSC

In a 2019 panel hearing, the OSC broke international ground when they approved the first Bitcoin investment fund. The OSC panel stated:

“Some novel asset classes and securities products fail. They become tulip bulbs or dot-coms. Others succeed and become gold or the next great technology. Securities regulators are not mandated to try to pick winners and losers.”

Also adding:

“The notion of ‘professionalizing’ investing in risky assets to mitigate risks should be encouraged; not discouraged,”

Developments in Quebec with the AMF

In October of 2019, The University of Quebec in Montreal’s School of Management Sciences (ESG-UQAM) announced its collaboration with the Autorité des Marchés Financiers (AMF) and Finance Montréal, an NPO dedicated to the growth of the fintech sector, the Creation of the AMF-Finance Montreal Research Chair. This collaboration aims to find needed answers and research the impact of digitalization.

In the same month, Finance Montreal launched the Montreal Fintech Station; This coworking space reserves its offices for starting and growing Fintechs and aims to provide a growth-centric environment.

Developments in British Columbia with the BCSC

In 2017, the BCSC registered the very first investment fund manager solely dedicated to emerging cryptocurrencies.

Developments throughout the other provinces

As it stands, not many developments are coming from the securities commissions from the Prairies, Maritimes and the Northern Territories.

In sum

So as it stands, Canada seems to be cautiously accepting of the upcoming changes. Cryptos are entirely legal and exchanges are seeing the beginnings of regulation; Tax measures have been put in place, revenue can be considered either as business income or capital gains; allowing for both regular consumers and businesses alike to partake in trading without any fear of negative repercussions; save from their own dishonesty.

“The advent of DLT and cryptos is something that creates a whole new economic fabric; it’s important for everyone to understand the implications at the core: Be it Governmental entities and commercial ones but also end-users.” – Louis Roy CPA, CA, Partner and President of Catallaxy

With legislation and regulations being put in place, Canada finds itself on the doorstep of a major turning point in both the digital and financial industries. Commercial acceptance is growing, real-world application is showing feasibility and more importantly, end-users from everywhere are becoming interested given Governmental involvement. But this doesn’t mean that the battle is won; only time will tell how digitization will tailor itself into our economical structure.

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