On September 6, 2017, the British Columbia Securities Commission (“BCSC”) announced the first registration of an investment fund manager in Canada dedicated solely to cryptocurrency investments. First Block Capital Inc. (“First Block Capital”), which will operate a bitcoin investment fund, was registered as an investment fund manager and exempt market dealer. The company is also registered in Ontario, with the BCSC being its principal regulator.
In its news release announcing the registration, the BCSC noted that cryptocurrency investments raise unique risks, such as cybersecurity risks that accompany dealing in digital currencies, that distinguish such investments from investments in traditional asset classes. These risks relate not only to the registrant, but also to the cryptocurrency fund’s custodian, which is a third party chosen to facilitate the safekeeping and exchange of the cryptocurrency.
The BCSC imposed various conditions of registration on First Block Capital in order to provide the company with the flexibility to allow them to operate within the present regulatory framework and, at the same time, to provide the BCSC with the necessary tools to evaluate the unique risks that accompany cryptocurrency investments.
The BCSC’s announcement follows less than two weeks after staff of the Canadian Security Administrators issued CSA Staff Notice 46-307 Cryptocurrency Offerings (“CSA Notice”), which was outlined in an earlier blog post. In the CSA Notice, staff provided guidance on, among other subjects, several factors relevant to the operation of cryptocurrency investment funds and dealer registration requirements.
As noted in the BCSC’s news release, there is a strong appetite for access to cryptocurrency investments in Canada. We can expect that additional investment funds dedicated to cryptocurrency investments will appear in the near future. The BCSC advises that whether they are potential new registrants or existing fund managers, companies in B.C. that are considering including cryptocurrency investments in their funds should contact the BCSC’s Tech Team, created in January 2017 as part of the BCSC’s Fintech outreach initiative aimed at assisting B.C.-based Fintech and technology companies understand their securities regulatory requirements.
Finally, given the pace of development in the area of cryptocurrencies and blockchain technologies more generally, we can expect that securities regulators will continue to focus energy and attention on developing and refining regulatory instruments aimed at addressing potential risks associated with investments incorporating these innovations. This is an area that is the subject of rapid change and, as such, should be monitored closely.