CSA/IIROC issue marketing and social media guidance for crypto trading platforms

Yesterday, CSA and IIROC Staff published Staff Notice 21-330: Guidance for Crypto-Trading Platforms: Requirements relating to Advertising, Marketing and Social Media Use. In the guidance, Staff advise crypto trading platforms (CTPs) that are registered or have applied for registration as securities dealers that they are subject to regulatory prohibitions against the use of false and misleading advertising and unsubstantiated claims.

Staff also raise concerns regarding CTPs offering their clients bonuses or rewards based on the level of trading or time-limited promotions that may encourage clients to engage in excessively frequent or risky trading. Staff remind CTPs that registered dealers are gatekeepers to the capital markets and have an obligation to treat their clients fairly, honestly and in good faith. Staff also suggest that marketing materials which encourage trading may be considered a form of solicitation and therefore trigger suitability obligations relating to global trading strategies or individual securities. For example, an email message to clients that says “BTC skyrockets! Don’t get left behind!” could be considered a solicitation. For CTPs that rely on exemptive relief from the suitability requirement based on an account appropriateness model, this type of marketing would violate the conditions of their exemption.

In addition, Staff outline their expectations for compliance and supervision of CTP personnel using social media to communicate with clients and the public for business purposes. CTPs are expected to implement systems for monitoring and maintaining records of social media use, including internal controls designed to prevent misleading and false statements, which extend to the CTPs’ directors, officers, employees, shareholders and other third parties acting on their behalf.

CTPs that have applied for registration should be aware that Staff will likely be reviewing their marketing materials, including on social media, as part of the registration process. CTPs should review Appendix A of the Staff Notice, which provides specific examples of misleading claims by CTPs, such as a claim that the CTP does not charge any commissions when it earns a spread on crypto prices or “meets all regulatory requirements” when it is only registered as a Money Services Business.

Staff Notice 21-330 presents an opportunity for custodial CTPs to review and enhance their existing marketing practices to reflect the industry standard applicable to registered securities dealers.