The Canadian Securities Administrators (CSA) have encouraged platforms offering or intending to offer loans collateralized by crypto assets to consider securities laws potentially applicable to their businesses and comply with any relevant regulatory requirements.
In a news release, the CSA noted that crypto-backed lending platforms could reach out to the relevant securities regulator to clarify whether requirements under securities legislation or exemptive relief would apply to them.
The CSA urged investors interested in engaging with crypto-backed lending platforms to be cautious of risks and seek information on the regulatory status of the platforms with which they sought to do business to confirm whether the platform was registered with a securities regulator or subject to exemptive relief from regulatory requirements.
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The CSA said it has engaged with crypto-backed lending platforms and granted some exemptive relief, catering to the specific business model of each, including conditions aimed at protecting investors. The CSA added that its website lists the platforms that have received such relief.
The CSA explained that crypto-backed loans usually arose when investors or borrowers transferred their crypto assets to platforms or lenders as collateral in an amount exceeding the loan’s value. The CSA noted that crypto-backed lending platforms, depending on the circumstances, could engage in securities trading and distribution, which could require registration and prospectus filings.
The CSA noted that platforms that did not communicate with their respective regulators risked security law breaches and regulatory action.
The CSA stated that platforms not registered with or subject to exemptive relief posed substantial investor risks, including inadequate internal controls to protect collateral and insufficient or inappropriate disclosures about the loan’s terms.
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In its news release, the CSA shared that it offers flexible approaches to help innovative businesses comply with the applicable regulatory requirements under securities laws through its financial innovation hub and jurisdictional innovation hubs.
The CSA’s financial innovation hub seeks to facilitate open discussions and responsible experimentation within the regulatory framework. It shares resources for testing relief parameters, identifying investor risks, and spurring innovation within the Canadian crypto asset industry.
As the council of securities regulators of the country’s provinces and territories, the CSA aims to improve, coordinate, and harmonize the regulation of Canada’s capital markets.