Canadian securities watchdog passes new rules for VASPs, demands swift compliance

The Canadian Securities Administrators (CSA) has released new rules for virtual asset service providers (VASPs) to abide by in a bid to shield investors from the industry’s inherent risks.

The CSA announced the regulations this week, which it termed “enhanced investor protection commitments” from service providers operating in Canada. Entities looking to continue operating in the country are expected to make new commitments ahead of their registrations with the relevant regulatory bodies as a pre-registration undertaking.

The rules have been in the works since 2021, following the sudden collapses of several centralized entities in the space that wiped off billions of investors’ funds.

“Recent insolvencies involving several crypto asset trading platforms highlight the tremendous risks associated with trading crypto assets, particularly when conducted on unregistered platforms based outside of Canada,” SA Chair Stan Magidson said.

All service providers shall cease offering customers margin, credit, or leverage in any form and ensure the clear separation of customers’ funds from proprietary funds, the new rules stated. Other clauses introduced under CSA’s updated regulation include a prohibition from entities to offer customers stablecoins unless with the written consent of the CSA.

Firms are expected to comply with the CSA’s rules within 30 days, with the securities watchdog threatening non-compliance with “appropriate action to off-board existing Canadian users” and other enforcement actions.

“The CSA reminds Canadians that trading in crypto assets comes with elevated levels of risk and may not be suitable for many investors, particularly retail investors,” read the press release. “Generally speaking, trading crypto assets is a speculative activity, and the value and liquidity of crypto assets are highly volatile.”

Canadian authorities pine for stiffer regulations

The CSA is not the only Canadian authority pushing for tighter local digital currency industry regulations. In December, the Bank of Canada raised the alarm over the risks posed by stablecoins, calling for stiff regulatory control for the asset class.

Research analysts at the central bank identified run-risks and contagion risks from stablecoins as the top concerns for the broader financial ecosystem. Their concerns were stoked by Terra USD’s (UST) de-pegging from the U.S. dollar, leading to the loss of billions of investors’ funds.

A key preference for Canadian investors is the regulation of stablecoins in the same manner as financial institutions and banks in line with the Financial Stability Board (FSB) recommendation.

Watch: The Future of Digital Asset Exchanges & Investment