The Canadian government has officially launched a consultation for feedback on public disclosure of crypto exposures by federally regulated financial institutions (FRFIs). In an official press release, the Office of the Superintendent of Financial Institutions (OSFI) announced interest in comments on public disclosure as included in the 2023 federal budget.
The OSFI’s consultation is part of efforts to tighten regulation in Canada’s crypto sector, specifically to manage risks to the financial system and protect users. The regulator notes that digital innovation is vital to transact and manage money, but presents several risks when left unregulated. According to the news release, public disclosures promote market discipline, data comparability, and transparency.
The OSFI’s release also mentions that the Basel Committee on Banking Supervision (BCBS), a committee of banking authorities comprising 45 institutions across 28 jurisdictions, launched a similar consultation for internationally active banks in October. The OSFI says its consultation will run alongside that of the BCBS.
In addition to other comments, the Office hopes that responses will specify whether or not there are any technical aspects of the BCBS’ disclosure tables and templates it should modify and implement for institutions in Canada. The regulator is also asking for key considerations to be factored into disclosures regarding their proportionality, and if there are any other points it should consider. Both consultations are seeking comments until January 31, 2024.
New crypto rules implemented in Canada may be considered tight by observers and enthusiasts who prefer a different approach to the control and regulation of cryptocurrencies in the country. However, even when the laws may be deemed difficult, the goal is customer protection.
Globally, authorities and regulators continuously design laws to guide the crypto industry and significantly reduce risks that come with inadequate or a complete lack of regulation. Clarity in the regulatory landscape could greatly aid crypto-related business in Canada and help with growth and development.
Gambling services, for example, could benefit from increased adoption of crypto, and clarity of legislation on the business side. Although heavily regulated in Canada, gambling is allowed as legalized by respective provincial governments. Along with several other popular sectors, online gambling could expand significantly from supportive crypto laws, especially as global interest in crypto casinos increases. Several of these platforms already allow players to safely wager Bitcoin to play popular casino games while enjoying secure payments without third-party interference. In addition, Bitcoin casinos offer players higher RTP (return-to-player) rates than traditional platforms. (Source: https://www.basketballinsiders.com/canada/online-casinos/bitcoin/)
Canada has a recent history of stringent regulation, similar to the continuous crackdown from regulators in the United States. For instance, the Canadian Securities Administrators (CSA) announced a 30-day deadline in April for unregistered crypto trading platforms to register, along with instructions requiring them to separate customer funds. The regulator also asked crypto service providers to immediately suspend access to margin or leverage trading.
In February, the CSA had announced a restriction on stablecoins. According to the agency, crypto asset trading platforms must not allow clients to deposit or trade stablecoins and other “value-referenced crypto assets” (VRCAs) without written permission. The use of the VRCA term is deliberate, to include stablecoins that may have lost some stability in recent times. Part of the requirements for trading companies to trade stablecoins or VRCAs is ensuring all tokens are liquid enough, with an adequate amount in cash reserves.
While the CSA is adamant about restricting access to options, futures contracts, and other derivatives, there are concerns the rule may stifle the growth and expansion of crypto platforms in Canada. In addition, these limitations could affect the ability of platforms to properly compete with similar firms in other parts of the world. Unfortunately, this could put Canada’s crypto industry behind.
Furthermore, there is the worry that Canadians who cannot trade desired products on regulated platforms may go offshore to access these financial derivatives. If this happens, authorities would have failed in their duty of financial protection, especially if people patronize risky or unregulated platforms.
Already, the CSA’s position has led to the exit of a few major crypto service providers. In April, Paxos announced its departure from the Canadian market, stating that it may return upon later assessment. Other platforms, including Binance, OKX, and decentralized exchange dYdX, also left Canada. While OKX said the problem was “new regulations,” dYdX did not offer any specific reasons. However, Binance was direct, stating that the market in Canada is “no longer tenable” because of “new guidance related to stablecoins and investor limits.”
