As cryptocurrencies slowly gain popularity, regulators and central banks are increasing their focus on the novel investment instruments. The People’s Bank of China recently declared fundraising through cryptocurrencies illegal out of concern for the country’s financial markets. In contrast, Canada is taking a more measured approach.
Because of cryptocurrencies’ esoteric nature, the CanadianSecurities Administrators (CSA) recently published a paper offering guidance on initial token offerings (ITOs) and initial coin offerings (ICOs). The document offers specific guidelines for different cases — particularly when tokens and coins be treated like equities and when they should be seen more like conventional money.
On the provincial level, regulators are helping firms in the cryptocurrency business ensure they don’t act offside existing laws. According to coindesk.com, the Autorite des marches financiers (AMF) recently accepted an ICO by Quebec responsible-investing firm Impak Finance as a security offering. The AMF has even accepted the company as a two-year test case for its regulatory sandbox, granting it relief from certain requirements normally imposed on securities issuers as long as it meets other terms.
More recently, the British Columbia Securities Commission (BCSC) granted First Block Capital, an investment fund manager and exempt-market dealer, the first registration in Canada solely dedicated to cryptocurrency investments.
“[T]here is a strong appetite for access to these kinds of investments,” said Zach Masum, manager for legal services and capital markets regulation and leader of the Tech Team at the BCSC. “This first registration allows access to bitcoin investments, while providing the BCSC with unique mechanisms to monitor operations in a rapidly developing area.”
The terms of First Block’s registration allow the firm to work under the current regulatory framework with a certain degree of flexibility. At the same time, they give the BCSC tools to evaluate the identified risks from the new fund type.
“We strongly encourage other companies in British Columbia, whether they are potential new registrants or existing investment fund managers, to contact the BCSC’s Tech Team if they are considering pursuing cryptocurrency investments in their funds,” Masum said. The BCSC’s Tech Team was established in January to help tech and fintech firms in BC in being aware of their requirements under securities regulation. It expects to issue a publication later this year summarizing results of its outreach and proposing next steps.