On September 23, 2021 the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) published a staff notice (Notice) concerning certain advertising activities and marketing strategies by platforms that trade crypto assets (Crypto- Trading Platforms, or CTPs) that may breach certain requirements of securities legislation.
The Notice includes an overview of the principal requirements under securities legislation and IIROC rules in relation to advertising and marketing, including through the use of social media, and is intended to assist existing registrants and prospective registrants (platforms that may be considering establishing a CTP as a new business line who require registration) regarding
- statements in advertising and marketing materials that could be considered false or misleading,
- concerns over the use of gambling-style contests, promotions or schemes, such as the offering of bonuses or rewards based on the level of trading, that may encourage excessive trading by retail investors,
- compliance and supervisory challenges when using social media to promote CTPs, and
- complying with securities legislation generally.
The Notice identifies a number of potentially false or misleading statements in advertising or marketing materials that a CTP may engage in, including those that suggest that a CTP is registered under securities legislation where this is not the case or that a securities regulatory authority or regulator has approved or endorsed the CTP, any products offered.
The Notice specifically refers to contests, promotions, bonuses and time-limits to encourage investors to engage in trading and to act quickly for fear of missing out on an investment opportunity or a reward.
The Notice also refers to advertising and marketing strategies designed to encourage trading may be considered a form of solicitation or invitation to trade and may therefore trigger suitability obligations for registered CTPs.
The Notice provides that registered CTPs must consider compliance and supervision when using social media websites and platforms (social media sites) as a means of communicating with clients and the general public. The use of social media sites increases the risk that CTPs may not be retaining adequate records of their business activities and client communications on interactive social media web sites that include the posting of both real time and static content. CTPs must design systems that allow for compliant record retention as well as retrieval capability.
The Notice requires that CTPs supervise social media as necessary, particularly considering the provisions in securities legislation relating to the use of misleading and false statements. The CTP’s review of electronic communications must be sufficient to meet its supervisory obligations which extend to the CTP’s directors, officers, employees, shareholders and other third parties acting on behalf of the CTP.
The Notice also reminds CTPs that they are required to adopt appropriate policies and procedures governing the use of social media for marketing which provide for the review, supervision, retention and retrieval of advertising and marketing materials, including marketing done on social media web sites, the designation of an appropriate individual to be responsible for the supervision or approval of marketing communications, and a system to monitor compliance with policies and procedures, including record retention and retrieval capability.
The CSA reminds registered CTPs and prospective CTP registrants that CSA staff may review advertising and marketing as part of the registration review process and following registration as part of a compliance review. False or misleading advertising and improper marketing strategies raise concerns relating to the fitness of the firm and its principals for registration (particularly in terms of the fitness for registration criteria of integrity and proficiency).
CSA members may take enforcement action against CTPs, including foreign-based CTPs that have investors in Canada, that do not comply with the requirements of securities legislation.
For a copy of the Notice please see: https://www.bcsc.bc.ca/-/media/PWS/New-Resources/Securities-Law/Instruments-and-Policies/Policy-2/21330-CSA–IIROC-Joint-Staff-Notice-September-23-2021.pdf
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.