Cryptocurrency and the ways it can be used as a tool for investment has become a prevalent topic. In an effort to keep you apprised on how Canadian regulators have been adapting to this new investment tool, we thought it would be helpful to provide a high level summary of some of the regulatory developments that have occurred over the summer in this area. If you are looking for more detail regarding any items below, please feel free to contact us.
Regulatory Guidance Released Regarding Cryptocurrency:
In August, Staff of the Canadian Securities Administrators released guidance setting out that cryptocurrencies will often meet the definition of “securities” under Canadian securities laws, and where it does, registration and prospectus obligations may apply. We discuss this guidance in more detail in our In Brief article, Cryptocurrency: Where do we go from here?
impak Finance Launches the First, Regulator Approved, Canadian Initial Coin Offering:
In August, impak Finance obtained exemptive relief from both Québec and Ontario regulators to launch an initial coin offering by way of private placement under the offering memorandum exemption. Certain aspects of the exemptive relief included that impak Finance: (i) deliver an offering memorandum to each investor; (ii) does not have to register as an exempt market dealer but must still conduct know-your-client procedures for each investor; (iii) could sell to the general public as long as the investment amount was limited to $2,500; and (iv) must establish an independent governance body to set the conversion rate of the cryptocurrency into Canadian dollars.
First Block Capital Inc. becomes the First Registered Cryptocurrency Investment Fund Manager in Canada:
First Block Capital Inc. launched FBC Bitcoin Trust, an investment fund managed by First Block that invests exclusively in bitcoin. First Block was granted registration as an investment fund manager by the British Columbia Securities Commission and was the first to obtain registration with a disclosed intention to manage cryptocurrency funds.
First Block’s registration includes certain terms such as it must notify the regulators each time they establish a new cryptocurrency investment fund, change investment objectives or change or add the type of cryptocurrency a fund invests in, that each investment fund has a custodian, and that First Block provide certain additional reporting to regulators including an annual independent auditor report and a quarterly report.
The developments set out above signal that Canadian regulators are willing to work with market participants to develop cryptocurrency initiatives. It is also evident that there is an expectation from market participants that cryptocurrency initiatives fit within existing Canadian securities law as opposed to being exempt from them.