Canadian securities regulators issue warning about crypto trading

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On November 21, 2022, the Canadian Securities Administrators (the CSA) issued a warning to investors about elevated risks of trading crypto assets. The CSA statement warns that there are unregistered crypto asset trading platforms which may lack essential safeguards to protect investors’ assets from loss, theft or misuse.

The statement also warns of elevated risks to investors of trading in crypto assets on platforms that are registered in Canada. Among other things, the CSA statement cautions that “generally speaking, the value and liquidity of crypto assets are highly volatile”, that “registration cannot eliminate all risks associated with crypto asset trading platforms”, and that “trading crypto assets is a form of do-it-yourself online investing [that] requires considerable time, knowledge, skill and research.”

The CSA statement follows on the heels of a recent joint statement by the federal Office of the Superintendent of Financial Institutions, the Financial Consumer Agency of Canada (FCAC), and the Canada Deposit Insurance Corporation. As we have previously reported, that statement included information on the application of FCAC’s general consumer protection framework to crypto market participants.

Both statements reflect increased regulatory attention on consumer protection by Canadian financial and securities regulators and were likely, at least in part, prompted by recent downturns in crypto markets. It remains to be seen whether the CSA’s focus on suitability will result in additional suitability requirements imposed on licensed crypto trading platforms. The exemption orders currently being issued generally require licensed platforms to limit annual purchases of crypto on a net acquisition cost basis, except for purchases of Bitcoin, Ether, Bitcoin Cash, and Litecoin.

Developments in the digital assets world and regulators’ corresponding expectations are evolving at a rapid pace. We will keep an eye on these developments and continue to report on this space.