Laure Fouin
Mar 4, 2024
Investments come with risks, but some are riskier than others. Sam Bankman-Fried’s conviction in the United States for defrauding investors in the now-bankrupt FTX cryptocurrency exchange shook the market and made many wonder about the safety and security of cryptocurrencies. The McGill Law Journal podcast invited Laure Fouin, partner, Corporate and Co-Chair of the Digital Assets and Blockchain Group, to address that issue, and to comment on the differences between Canadian and American cryptocurrency regulations.
Laure told podcast hosts (and L1 law students) Garrett Grossman and Andrew Blackwell that the laws governing the Canadian crypto market are very different from those south of the border. To start with, Canadian securities regulators had to decide if cryptocurrencies were securities or derivatives. Because the platforms offer no immediate delivery of funds into the investor’s wallet, “an investment contract is created between the platform and its users” known as a crypto asset contract (CAC).
Laure said that determination is part of the efforts the Canadians Securities Administrators made to put a framework in place to force crypto asset trading platforms (CTPs) into regulatory compliance, including registering as restricted dealers with the Canadian Investment Regulatory Organization (CIRO). She also said that Canadian crypto investors should be using the platforms registered in Canada because of the protections provided under CIRO.
“In Canada, the CTP holds the crypto assets in trust for the benefit of the clients, not in its [own] name,” explained Laure. “Because the CTP also holds clients’ cash, all clients’ cash needs to be with a Canadian financial institution or qualified custodian… and they need to be separate and apart from the CTP’s own assets and the assets of other custodial service providers.” She added that CTPs “cannot pledge; they cannot re-hypothecate. They cannot in any way use any of the crypto assets that are held for the benefit of the clients, so that is a huge difference with FTX.”
Laure is very excited for the future promised by Web 3.0, cryptocurrencies and the possibilities associated with the blockchain, but she is also happy to be over the instability in the market caused by the FTX collapse.
“There [was] FOMO [fear of missing out] in the crypto world and in the traditional world looking at crypto because of the very high increase of prices that had occurred. And thanks to the crypto winter that was created because of this type of [platform] failure, this climate has disappeared. And it is a good thing, in my opinion. Part of the fraud was due to the sense of urgency — that has now disappeared. In the crypto world, we take more time and, I believe even in the U.S., proper due diligence is performed.”
You can listen to the full 20-minute podcast “MLJ Shorts: Canadian Crypto Regulation Following the FTX Collapse” (or download it to your own device) at the McGill Law Journal website.