The Canadian Securities Administrators (CSA), Canada’s main financial authority, has expressed its confidence in the regulated futures market for cryptocurrencies, highlighting its role in promoting price discovery. In addition to the United States, Canada is home to several crypto exchange-traded funds (ETFs).
On July 6, the CSA issued guidance to assist fund managers in complying with legal requirements for investment funds that hold crypto assets. The 15-page document defends the existence of crypto ETFs in Canada, emphasizing their ability to hedge against the price volatility of specific crypto assets.
The CSA specifically mentioned Bitcoin (BTC) and Ether (ETH) markets as providing strong support for public crypto asset funds without compromising investor protection. The guidance also imposes restrictions on the proportion of illiquid assets held in the funds, emphasizing the need for assets to be easily disposed of on the open market.
The regulator expects investment funds to conduct thorough due diligence to determine whether the crypto assets they plan to invest in are securities or derivatives. It also reminds investment managers that lending assets that are not securities is prohibited.
The document outlines minimum expectations for the custody of crypto assets, including primary storage in cold wallets, segregation of assets, visibility on the blockchain, insurance against corporate crime, and providing reports to fund auditors.
The guidance also addresses the issue of crypto staking. While the CSA does not explicitly prohibit staking, it expects fund managers to be aware of the possibility of liquid crypto assets becoming illiquid during staking and to comply with the restrictions on illiquidity.
In the spring of 2023, several major crypto exchanges suspended operations in Canada due to the regulatory climate. dYdX, a decentralized exchange, announced the winding down of its services for Canadian users in April. In May, Binance proactively withdrew from the country, along with another platform, Bybit.
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