The Canadian Securities Administrators (CSA) has published new guidelines for public investment funds holding or seeking to invest in crypto assets, especially complying with securities law requirements. The guidelines cover custody, staking, valuation, and suitability of crypto assets for retail investors.
Overview of the guidelines
The CSA is the umbrella organization of Canada’s provincial and territorial securities regulators, whose objective is to improve, coordinate and harmonize the regulation of the Canadian capital markets.
The CSA recently published guidance to help fund managers understand and comply with securities law requirements for public investment funds holding crypto assets (public crypto asset funds).
The guidance aims to provide “an overview of public crypto asset funds operating in Canada and describes related oversight initiatives by CSA members.”
The notice also covers the following:
- Market characteristics of crypto assets that could impact their viability as investments for public crypto asset funds
- Expectations concerning custody of crypto assets held on behalf of a fund
- Issues relating to yield-generating activities, like staking, by public crypto asset funds
- Know-your-client, know-your-product, and suitability obligations with respect to public crypto asset funds.
Stan Magidson, CSA Chair and CEO of the Alberta Securities Commission said,
“We encourage stakeholders to review this guidance to better understand our expectations of public crypto asset funds. It is important for such funds to clearly understand their existing regulatory obligations given recent events in the crypto market.”
Crypto asset market in Canada
Unlike the US SEC, Canada admits crypto and Bitcoin have advantages and gradually easing limits to investing in crypto assets. Major crypto events will happen in the coming months, including the 2023 Blockchain Futurist Conference and the ETHToronto.
Canada was one of the first countries to allow public investment funds to invest directly in crypto assets.
The first Canadian public crypto asset fund was issued in April 2020 and created a non-redeemable investment fund that invests its assets directly in Bitcoin (BTC).
As of April 30, 2023, there were 22 Public Crypto Asset Funds in Canada with CAD 2.86 billion in net assets.
Canada’s Public Crypto Asset Funds are classified as exchange-traded or conventional mutual funds (ETFs). These products have not experienced any material difficulties meeting redemption requests since their respective inceptions in Canada.
Custody and Staking of Crypto Assets
Ensuring safe custody of crypto assets is a challenge for public crypto asset funds. The CSA requires compliance with securities law requirements, including offline storage, separate from the custodian’s assets.
Qualified custodians and caution with third-party providers are advised.
Staking in public crypto asset funds has income potential but carries risks. Expertise, written agreements, and limitations on specific coins with liquidity are required.
Staking of regulated assets is also prohibited.
Conclusion
The CSA’s guidance on public crypto asset funds brings clarity to the Canadian crypto industry by outlining securities law requirements.
It acknowledges the benefits and challenges of crypto assets as investments and also demonstrates the CSA’s commitment to monitoring and adapting to the evolving market, while prioritizing investor protection and market integrity.
For more information on the guidance, click here.
