The Canadian Securities Administrators (CSA), Canada’s top financial regulator, has released a comprehensive set of guidelines to assist digital asset investment fund managers in the country to meet their legal obligations. The 15-page document, published on July 6, 2023, provides detailed instructions on investment decisions, investor protection, custody of cryptocurrency assets, and crypto staking.
The CSA identified Bitcoin and Ether markets as the most reliable for public crypto asset funds and imposed restrictions on the proportion of “illiquid assets” allowed in these funds. (Illiquid assets refer to assets that cannot be easily sold on the open market.)
When it comes to investment decisions, the CSA expects fund managers to independently determine whether the crypto assets they plan to invest in qualify as securities or derivatives after conducting thorough due diligence. The CSA also emphasizes that lending non-security assets is strictly prohibited.
The CSA’s guidelines also outline the “minimum expectations” for custody of cryptocurrency assets. These expectations include primary storage in cold wallets, transparent asset separation visible on the blockchain, obtaining insurance against corporate crime, and delivering reports to auditors.
Regarding crypto staking, the CSA confirms that it does not explicitly prohibit staking but advises fund managers to consider the potential liquidity risks associated with staking and to adhere to the rules on “illiquidity.”
The CSA is Bullish on Crypto ETFs Amidst Country’s Evolving Crypto Industry
In recent months, several prominent cryptocurrency exchanges cease operations in Canada due to perceived unfavorable “regulatory climate.” In April 2023, dYdX announced a gradual discontinuation of its services for Canadian consumers. Bybit and Binance also followed in May 2023.
Despite these recent shutdowns, the CSA remains confident in the controlled futures market for cryptocurrencies in the country. The regulator noted that one of the benefits of cryptocurrency exchange-traded funds (ETFs) is mitigating the volatility associated with specific crypto assets.
This affirmation is significant as Canada continues to host numerous cryptocurrency exchange-traded funds (ETFs). With the new guidelines, the regulator underscored the overall legitimacy of crypto ETFs in Canada.
The CSA’s guidelines provide clarity and guidance to market participants while balancing innovation and investor protection. These steps are expected to further solidify Canada’s cryptocurrency market position.
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