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Notice 21-327

The Canadian Securities Administrators (CSA) have recently issued Notice 21-327 – ‘Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets’.

The title may be a mouthful, but the goal is simple – Educate trading platforms and the public, alike, on how securities regulations pertain to their activities.

For the purpose of education, it may be easier to understand the instances in which securities laws DO NOT apply, rather than the many instances in which they do.  The CSA indicates the following:

“Platforms would not generally be subject to securities legislation if each of the following apply:

  • the underlying crypto asset itself is not a security or derivative; and
  • the contract or instrument for the purchase, sale or delivery of a crypto asset
    • results in an obligation to make immediate delivery of the crypto asset, and
    • is settled by the immediate delivery of the crypto asset to the Platform’s user according to the Platform’s typical commercial practice.”

As made obvious from the above points, there really are not many instances in which exchange based activity does not fall within the purview of existing securities laws.

Whether through a misunderstanding of current regulations, or intentional disregard, many active exchanges within Canada are currently in violation of various securities based regulations.  For users of these exchanges, and the companies themselves, the CSA does their best to provide clarification on how exactly securities regulations apply to their activities.  For those worried about, or simply curious of, this application, make sure to read the notice HERE.

Stifling an Industry?

While some may view the notice as a fear tactic, looking to stifle a quickly growing industry, the CSA does their part to quell this notion.  The organization wants the public to know that they do, indeed, support technological growth, and their own adaptation to the times.

The CSA takes the time to close out their notice with the following statement,

“We welcome innovation and recognize that new fintech businesses may not fit neatly into the existing framework. The CSA Regulatory Sandbox is an initiative of the CSA to support fintech businesses seeking to offer innovative products, services and applications in Canada. It allows firms to register and/or obtain exemptive relief from securities law requirements, under a faster and more flexible process than through a standard application, in order to test their products, services and applications throughout the Canadian market, generally on a time-limited basis.

Several firms that have businesses or projects that involve crypto assets have been registered or have obtained exemptive relief from the securities law requirements”

Playing in the Sandbox

While many players in the sector may be playing by their own rules, various companies have come forth in an attempt to work with regulators.  The following list is comprised of those which have, thus far, been admitted to the aforementioned CSA Sandbox, attaining certain exemptions from existing laws.

  • ZED Network Inc.
  • TokenGX Inc.
  • Majestic Asset Management LLC
  • Rivemont Investment Inc.
  • 3iQ Crop.
  • Token Funder Inc.
  • Ross Smith Asset Management ULC
  • First Block Capital Inc.
  • Impak Finance Inc.
  • Angel List LLC, and AngelList Advisors LLC

Strategic Goal 6

The issuance of Notice 21-327 comes as no surprise.  The CSA has long been privy to the advancements being made within the world of blockchain; So much so, that the CSA specifically singled out the industry within their most recently released business plan.

Released in mid-2019, this business plan addresses various strategic goals within a 3 year time frame.  Coming in at #6 was their intent to ‘respond to technology-related emerging regulatory issues.’

Of the 4 initiatives comprising ‘Strategic Goal 6’, 3 pertain to crypto-assets and their place within securities regulations.  These 3 initiatives are as follows:

  • Propose a regulatory regime for crypto-asset trading platforms
  • Consider custodial requirements in relation to crypto-assets
  • Consider the capital raising and issues that may be unique to aspects of blockchain based securities

The CSA summarizes the rationality behind this increased focus on blockchain and DLT technologies by stating,

“DLT has the potential to transform the landscape of the financial industry. Crypto-assets are probably the most well-known and widespread application of blockchain. The CSA will consider possible changes to adapt the current regulatory framework to address the unique challenges brought by crypto-assets that fall under the CSA jurisdiction. This strategic goal consists of (i) identifying the emerging regulatory issues related to technology that require regulatory action or clarity, and (ii) developing a tailored and effective regulatory response for significant issues identified.”

This stance, in addition to the more recent one described in Notice 21-327 above, are positive for the nascent blockchain sector, as the CSA clearly recognizes unique needs, and is ready to tailor their approach to regulation.  To read through the business plan in full, make sure to peruse the following document.

CSA Business Plan – 2019-2022

Canadian Securities Administrators (CSA)

The Canadian Securities Administrators (CSA) is self-described as an ‘umbrella organization’.  With Canadian securities laws being enforced on a provincial level, the CSA serves as a mediator, tasked with unifying the various regulatory bodies nationwide.

The organization lists their overall initiatives as providing,

  • Protection to investors
  • Fostering fair and transparent markets
  • Striving for a reduction in system risk

Operations at the CSA are overseen by a committee of professionals, each representing a respective territory or province.

In Other News

Canada is not the only nation trying to determine the best way to serve, and regulate, FinTech.  While still a young means of capital generation, equity crowdfunding has a few years head-start on blockchain based endeavours.  Perhaps, looking towards past actions taken towards regulation of North American crowdfunding will shed light on how new technologies such as DLT and blockchain will be treated.

Equity Crowdfunding in North America



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