The Canadian Securities Administrators (CSA) recently announced in of CSA Staff Notice 21-332 (the Staff Notice) a change in the Pre-Registration Undertaking (PRU) that certain unregistered crypto asset trading platforms have filed a with their principal regulator.
The failure of several recent high-profile crypto platforms, has shown the need for the introduction further investor protections into the PRU. The resultant Enhanced PRU is a precondition for CSA members allowing unregistered crypto trading platforms to continue to operate while the crypto trading platforms pursue their applications for registration and related relief. PRUs contain commitments by crypto trading platforms that they will operate in a certain manner during the registration process.
The new commitments expected from unregistered crypto trading platforms include:
- enhanced commitments in relation to the custody and segregation of crypto assets held on behalf of Canadian clients;
- enhanced commitments to preclude the unregistered crypto trading platform from pledging, rehypothecating or otherwise using crypto assets held on behalf of Canadian clients;
- a prohibition on the part of the crypto trading platform offering margin, credit or other forms of leverage to any type of client in connection with the trading of crypto contracts or crypto assets on the crypto trading platform;
- new commitments from controlling mind(s) and global affiliates that affect the crypto trading platform entity seeking registration and relief;
- restrictions on the part of the crypto trading platform relying on crypto assets, including proprietary tokens issued by the crypto trading platform or an affiliate of the crypto trading platform, in determining the capital of the crypto trading platform for excess working capital purposes and in determining the capital base of the crypto trading platform;
- enhanced commitments in relation to the filing by the crypto trading platform of financial information with the CSA on a regular basis;
- enhanced commitments in relation to the retention of a qualified Chief Compliance Officer (CCO) during the pre-registration process;
- a prohibition on the part of the crypto trading platform in respect of clients buying or depositing stablecoins through crypto contracts without the prior written consent of the CSA; and
- a prohibition on the part of the crypto trading platform in respect of trades in crypto contracts based on proprietary tokens, except with the prior written consent of the CSA.
CSA Staff Notice 21-332, Crypto Asset Trading Platforms: Pre-Registration Undertakings Changes to Enhance Canadian Investor Protection is available for download from the websites of CSA Members.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
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