On February 22nd, the Canadian Securities Administrators (CSA) published a notice that elaborated on the unique obligations required of crypto asset trading companies (CTPs) looking to register in Canada.
In Canada, the CTPs will be incorporated into the updated form of the preregistration undertakings, often known as PRUs. PRUs are binding legal documents. After that, primary regulators will make contact with these CTPs to have a conversation about complying with the new rules.
The revised regulations describe the protection of investors in light of the widespread dissolution of crypto asset trading companies in 2022. The new standards include discussions on subjects such as the allocation of assets, the use of leverage, the calculation of capital, and accountability.
Canada's Quest to Protect Crypto Traders
The Canadian Securities Administrators regulate the securities industry in each of Canada's 10 provinces and three territories.
It is currently against the rules for crypto asset trading systems to permit their customers to exchange or deposit stablecoins or any other kind of "Value Referenced Crypto Assets" unless they have received prior written authorization from the CSA.
To obtain consent, it is necessary to fulfill the administrator's numerous requirements, one of which is to guarantee that the stablecoin is backed by fiat currency.
The regulator also said that consent regarding a VRCA would only be provided if the asset is supported by an appropriate reserve but instead retains value in the algorithm.
This was done to provide a more comprehensive and all-encompassing guarantee. Stablecoin is designed to have a relatively consistent value during its lifetime. "basically stable asset" means something like fiat money.
Because several stablecoins have proven to be less stable than expected recently, Canada's regulatory authorities decided to use the term VRCA.
After discovering vulnerabilities in its algorithmic peg the previous year, TerraUSD (UST), formerly the third-largest stablecoin depegged from dollar. This caused the entire asset to plummet downwards.
On the other hand, more conventional stablecoins like USDT, USDC, and BUSD used reserves denominated in fiat currency to guarantee stable conversion for their assets and maintain a stable exchange rate.
CSA requires the assistance of trading companies that permit the use of stablecoins to ensure that the reserves of these tokens include an adequate amount of liquid assets (cash or its equivalents).
In addition, they must be subject to monthly audits conducted by independent auditors. These audits need to be open for the public to view so that they can form their conclusions.
Although fiat-backed cryptocurrency tokens typically fit the definition of security, allotments of these tokens must also comply with Canadian securities regulations to avoid legal repercussions.
Even if businesses successfully gain permission, the definition of a stablecoin cannot be more straightforwardly satisfied using computational methods.
Things could sound more liberating for cryptocurrency trading sites in Canada's neighboring country, also located in North America. Paxos was recently served with a Wells notice from the United States SEC, which asserts that the BUSD stablecoin that Paxos offers is an unregistered security.