Canada’s Stance on Crypto: Regulator Issues Guidelines for Staking & Lending

Canada’s Stance on Crypto: Regulator Issues Guidelines for Staking & Lending

The Canadian Securities Administrators (CSA), Canada's chief financial authority, has released a set of guidelines governing crypto staking and lending services for cryptocurrency firms, signaling its position on the matter.

In a move aimed at promoting greater price discovery in the regulated futures market for cryptocurrencies, the CSA confirmed its trust in this market on Thursday. Notably, the Canadian market hosts a number of crypto exchange-traded funds (ETFs), making it a significant player alongside the United States.

According to sources, the CSA has published a comprehensive framework to assist fund managers in complying with legal requirements when dealing with investment funds that involve crypto assets. The 15-page document, which was made public on Thursday, defends the existence of crypto ETFs in Canada and asserts that these funds possess the necessary tools to mitigate the risks associated with price fluctuations of specific crypto assets.

Within the framework, the CSA specifically identifies the Bitcoin and Ethereum markets as providing robust support for public crypto asset funds without compromising investor protection.

The newly issued guidelines also address the issue of illiquid assets, imposing restrictions on the proportion of such assets held in funds, which cannot be readily disposed of through the open market.

The document highlights the importance of conducting thorough due diligence, with the CSA expecting investment funds to determine whether the crypto assets they propose to invest in qualify as securities or derivatives. Additionally, the document explicitly prohibits investment managers from lending assets that do not meet the classification of securities.

Furthermore, the CSA outlines its minimum expectations for the custody of crypto assets, including the primary storage of assets in cold wallets, segregation of assets, blockchain visibility, insurance coverage for corporate crime, and the provision of reports to fund auditors.

Another aspect addressed in the document is crypto staking. While the regulator does not explicitly prohibit staking, it expects fund managers to remain vigilant regarding the potential illiquidity of crypto assets during staking and to ensure compliance with relevant restrictions.

The CSA's cautious approach to the crypto sector and its intention to regulate this space have been well-documented. Throughout discussions on crypto regulation, the regulator has consistently emphasized the potential risks, advocating for increased oversight.

Simultaneously, various countries, including Singapore and Thailand, have recently proposed banning crypto lending and staking services as a measure to safeguard investor interests.

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