New crypto-currency rules come as enforcement ramps up

The Canadian Securities Administrators are considering new regulations for crypto-currency assets and trading platforms by 2022, according to a recently released business plan approved at the end of May.

New crypto-currency rules come as enforcement ramps up
Allan Goodman says it will be helpful for lawyers to have access to a set of policies for crypto regulation.

The Canadian Securities Administrators are considering new regulations for crypto-currency assets and trading platforms by 2022, according to a recently released business plan approved at the end of May.

It will be a relief to have some sort of certainty to provide clients, amid a series of enforcement actions, says Allan Goodman, a partner at Goodmans LLP in Toronto and co-chairperson of the firm’s technology group.

“Rather than have ad hoc rulings or enforcement proceedings, it would be good to have — like we do for securities law — a set of guidelines and rules and policies and have the legislation catch up to the technology,” he says. “It’s always helpful for us as lawyers and for clients to have some policies — if not law . . . it’s sort of been on a one-off basis so far. Any commentary or guidance is always helpful for the industry.” 

Some of the recent enforcement actions involved crypto trading platform QuadrigaCX, as well as a U.S. Securities and Exchange Commission investigation of a token from Canadian company Kik Interactive Inc., says Goodman. 

“One the one hand, the CSA is saying, ‘We’re going to put in regulation,’ and on the other hand, the regulators are moving a little bit on incidents that have happened to sort of at least correct what are the most egregious circumstances,” says Goodman.

“It’s sort of parallel tracks. From a lawyer’s perspective, you have to watch both tracks: One, what are enforcement agencies doing? We are seeing a little bit there. And two, what are the regulators doing — when will we actually get legislation we can work with or at least regulations we can work with?”

While more guidance could prove helpful, a 2022 end-date is slow-moving compared to an industry that is quickly evolving, says Goodman. 

“We have seen a slowdown, certainly, of people trying to do Canadian crypto-currency offerings, just because of the regulatory uncertainty — compared to the volume of calls we were getting six months or a year ago,” he says.
“Obviously, it’s not just the legal risk, but the Bitcoin and crypto-currency market has slowed down, too. It’s not just the law but the economics, too.”

Goodman says the Canadian crypto industry is waiting for something more robust to sink its teeth into on the legal side of things. He says it’s important to understand the risk tolerance of your clients when working with crypto-focused technology companies.

“In Canada, of course, you have the complexity of 13 provincial administrators — it’s not a federal system so you’d have to get everyone in the CSA to buy in — so this is not going to happen in the next six months,” he says.

“As lawyers, we just kind of track landscape: We advise clients there is still a lot of uncertainty, so buyer beware. Enforcement actions are being taken, so be careful, because there isn’t just a regulatory framework that you can read black and white.” 

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