カテゴリーアーカイブ: Regulation

The Taxman Is After Your Bitcoin: Harvest Your Losses Before It’s Too Late

The year is coming to an end, and a lot of people have started thinking about minimizing their tax burden. If you’re a bitcoin investor, things get even more complex. The IRS recently sent out 10,000 letters to cryptocurrency investors, and this is an indication of how serious they are when it comes to cryptocurrency […]

The post The Taxman Is After Your Bitcoin: Harvest Your Losses Before It’s Too Late appeared first on Bitcoin Magazine.

Australian Government Publishes Update on Cryptocurrency and ICO Rules

Sydney Australia

The Australian Securities and Investments Commission (ASIC) has published an update on how it intends to regulate crypto-related businesses and initial coin offerings (ICOs).

In this guideline, the financial regulator outlines requirements that need to be followed for cryptocurrency businesses to be compliant with the ASIC Act.

This update is noteworthy as the country continues to battle crypto scams, losing almost $4.3 million in 2018.

Going forward, companies issuing crypto assets deemed to be financial products will be required by law to procure an Australian Financial Services (AFS) license. On the flipside, for crypto assets which aren’t financial products, promoters must ensure that they don’t engage in any form of deceptive advertising.

According to the Corporations Act, an ICO could be a financial product if it’s a “managed investment scheme, security, derivative or non-cash payment (NCP) facility,” ASIC explains.

Exchanges that manage and offer trading of these assets would also be required to follow the new guidelines, including holding an Australian market license, unless covered by an exemption.

In instances where miners could be considered as a part of the clearing and settlement processes for financial products, Australian laws will apply.

In part, the release notes, “Businesses offering crypto-assets, or offering services in relation to crypto assets, need to undertake appropriate inquiries to satisfy themselves they are complying with all relevant Australian laws.”

Crypto wallet and custody service providers would need the appropriate custodial and depository authorizations to operate, while crypto asset payment and service providers involved in non-cash payment facility require an AFS license.

The agency pointed out that it would be enforcing know-your-customer and anti-money laundering standards on all crypto assets. These cover assets managed within and outside of the country’s borders in tandem with the Australian Consumer Law.

ASIC Commissioner John Price said, “Australian laws will also apply even if the ICO or crypto-asset is promoted or sold to Australians from offshore. Issuers of ICOs, crypto-assets and their advisers should not assume the use of these structures means that key consumer protections under Australian laws do not apply or can be ignored.”

This article originally appeared on Bitcoin Magazine.

Cartoon: Driving Sheep

Industry regulators are finally catching up with blockchain companies that have dubiously defined their tokens as “utilities” (therefore avoiding the strict issuing and management requirements of “…

Bitcoin Businesses Push Back Against Proposed Canadian Crypto Regulatory Framework

Canada Coins

On May 16, 2019, San Francisco-based crypto exchange Kraken posted on Twitter a summary of its response to the Canadian Securities Administrators (CSA) “Proposed Framework for Crypto-Asset Trading Platforms”:

“Kraken strongly recommends against Canada imposing a security law framework on cryptocurrency exchanges in public response to the Proposed Framework for Crypto-Asset Trading Platforms published by the CSA,” Kraken wrote.

Jonathan Hamel, a Bitcoin technology consultant with the Montreal Economic Institute and founder of Académie Bitcoin, told Bitcoin Magazine that, in his view, the proposed security framework is a clear attempt to regulate Bitcoin and bring it under the purview of the CSA.

“Canadian Regulators are wandering outside their jurisdiction when it comes to Bitcoin,” Hamel said. “There are already sufficient safeguards such as KYC/AML imposed on money services businesses by Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).”

And, beyond any attempt to regulate Bitcoin, Hamel believes that the proposed framework overreaches for other cryptocurrencies as well.

“Let’s be clear, this is an obvious regulatory capture attempt in which some crypto businesses are participating to gain market advantages,” he said. “Regarding other tokens (ICOs), they should be treated under the existing securities regulation framework. There is no need for additional regulation.”

Bitcoin Is Not a Security

At the heart of many comments on the proposed framework, like the following tweet from Bitcoin entrepreneur Francis Pouliot, is the assertion that bitcoin is not a security and thus has no place under security regulators.

Most (likely all) cryptocurrencies other than Bitcoin are already securities in Canada as per existing laws and regulatory guidance.

Bitcoin-only exchanges not affected. Shitcoin exchanges should delist shitcoins if they don’t want to comply.

No new law needed indeed. https://t.co/pwK7xMiY0k

— Francis Pouliot 🐂 (@francispouliot_) May 17, 2019

In her submission to the CSA, financial services consultant and Octonomia founder Elisabeth Préfontaine, elaborated on the security status of bitcoin and the definition of a security, including an explanatory list pointing out that bitcoin has never been a security because no monetary capital was raised to develop it, there was no investment of capital from a founder and it has been functional since its inception, among other reasons.

“Bitcoin is not a security, therefore not a securities regulators matter,” Préfontaine told Bitcoin Magazine. “[The CSA] fail to recognize that there are bitcoin-only businesses and their lack of clarity is quite problematic for the bitcoin industry in Canada.”

A Case of Language Mushiness

Both Hamel and Préfontaine told us that there is a problem with the vague language in the proposal.

As the crypto space evolves, language is also evolving and not always with clear meaning and not always in agreed upon ways. For example, do “blockchain” businesses include bitcoin exchanges?

“The orientation of the consultation paper is problematic because it packages everything (including Bitcoin) under the vague notion of ‘crypto-asset’,” said Hamel.

Préfontaine raised the same issue.

“Canadian Securities Regulators are attempting to regulate something before they have properly defined it,” she said. “They are trying to include bitcoin in the securities framework by using vague language and by bundling it with the rest of crypto assets (as one big category).”

Canadian Chamber of Digital Commerce

The new Canadian Chamber of Digital Commerce (CCDC), an affiliate of the U.S. CDC, made a submission to the CSA that took a more middle-of-the-road approach.

The CCDC sees difficulties in regulating crypto enterprises that are not based in Canada, like Kraken, but have a significant number of Canadian users.

The CCDC submission says there should be a balanced regulatory approach so as not to threaten innovation in the space.

“The risk related to an error in regulatory judgement is also high — overregulation will stifle or displace digital asset innovators and investors in Canada, and ineffective regulation and regulation with unintended harmful consequences for industry innovators and investors will also do the same,” per the submission.

Andrei Poliakov, CEO and co-founder of Coinberry Exchange, worked with the CCDC on this feedback.

“My most important concern is making sure that whatever regulations are passed do not stifle the nascent cryptocurrency industry in Canada,” Poliakov told Bitcoin Magazine. “The cryptocurrency industry is a global one that truly knows no borders. Odious legislation and over-regulation will simply put Canadian business at a disadvantage.”

Outlier Canada CEO Amber D. Scott, a crypto compliance consultant, told us that there are currently laws in place that protect users, but they need to be enforced.

“While effective regulation is important, we also need to consider the laws that are already in place, and how they are enforced (or not enforced),” she said. “For example, fraud is already illegal in Canada, but we have little enforcement — few investigations and even fewer convictions.”

So, what happens now? The CSA can hold roundtables and the initial draft regulations could be released six months after that. It may be that the CSA will proceed to draft regulations without roundtables, which would then have to be resubmitted for comment.

Each province has to approve these new regulations, so it isn’t likely that anything will be published into law in the near future.

NOTE: The security regulations consultation process was undertaken jointly by the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada (IIROC).

This article originally appeared on Bitcoin Magazine.

Following Expansions, Japanese Regulator Investigates Local Crypto Exchanges

News Bit Japan

Japan’s Financial Services Agency (FSA) is looking into two major cryptocurrency exchange platforms as part of an investigation.

According to a report published by Reuters Japan on April 23, 2019, the investigation by the financial watchdog is connected to the legal compliance and customer protection standards of trading platforms Fisco Digital Asset Group (FDAG) and Huobi Japan, the Japanese subsidiary of Huobi Global.

FDAG recently acquired the crypto exchange Zaif, which was hacked last year, from Tech Bureau for $44.7 million. Huobi Global, meanwhile, expanded into Japan through the acquisition of the regulated exchange BitTrade.

Citing anonymous sources close to the companies, the Reuters report claims that the FSA’s inspectors primarily examined the companies’ internal oversight while also suggesting that there are certain insufficiencies in “the management systems of the two companies and their efforts to protect customers.”

Earlier this year, Huobi Korea, the South Korean subsidiary of Huobi Global, announced that it would be strengthening its anti-money laundering protection standards.

The firm’s focus was on its fiat-to-crypto oversight measures, as well as the processes for withdrawals and deposits on its platforms. It resolved that it will keep close tabs on all transactions that it deems suspicious. In addition, the exchange highlighted its commitment to provide periodic updates to its fraud-detection algorithms.

This article originally appeared on Bitcoin Magazine.

Cartoon: Distorting Mirrors

To many on the outside, the blockchain industry and speculative crypto markets are one and the same, which often leads to misunderstandings. For the two entities that regulate the market, the U.S. Securities and …

Bittrex Goes on the Offensive After BitLicense Rejection

Bittrex NY.jpg

Bittrex, a United States–based cryptocurrency exchange platform, has issued a response to the recent setback in its plans to expand to New York.

Yesterday, the New York State Department of Financial Services (NYDFS) rejected the exchange’s BitLicense application, a requirement for offering crypto-based services to New Yorkers.

NYDFS also published a letter addressed to Bittrex CEO Bill Shihara, where it cited inadequate Anti-Money Laundering (AML), Know-Your-Customer (KYC) and Office of Foreign Assets Control (OFAC) standards as reasons for its denial.

Bittrex had applied for the permit in August 2015 and had been operating in New York under BitLicense’s safe harbor provision while awaiting approval to be a licensed bitcoin service provider in the state.

In its official response to the agency, Bittrex expressed its disappointment at this setback, disagreeing with the state regulator’s assessment of its AML and KYC standards.

“Bittrex is saddened and disappointed in today’s decision by the New York Department of Financial Services (NYDFS), which we believe harms rather than protects New York customers. Bittrex fully disputes the findings of the NYDFS in today’s decision. We have worked diligently with NYDFS to address their questions and meet their requirements since first applying for our BitLicense in August of 2015.”

The U.S.-based exchange stated that it maintains a risk assessment framework that has been evaluated and approved by an external counsel, and it trains employees on its AML procedures and policies.

Bittrex also pointed out that all Specially Designated Nationals (SDNs) — a list of individuals and companies monitored by the U.S. government — are properly screened whenever a new account is opened, in line with the policies of the OFAC.

The exchange faulted the terms of a supervisory agreement that was proposed by the state regulator back in January, which would have resulted in the issuance of the permit to the firm. The exchange had rejected the agreement based on issues it had with the requirements.

Among other things, the agreement had capitalization requirements that were significantly higher than was required in other states. Per the post, the agency’s capital requirements were “based upon a pre-existing formula of hot wallet v. cold wallet storage” that didn’t consider the diverse range of cryptos listed on Bittrex and the “risks of frequently moving assets from hot to cold storage.”

This article originally appeared on Bitcoin Magazine.

Bitstamp Receives New York BitLicense

New York

Another digital asset platform has received approval to do business in New York.

Bitstamp, one of the largest crypto exchange platforms in Europe, has been granted a virtual currency license from the New York State Department of Financial Services (NYSDFS). The exchange became the 19th firm approved to offer crypto-based services in the world’s financial center.

The regulator announced in a press release published on April 9, 2019, that it had granted Bitstamp full authorization to run its digital currency operations in New York. Bitstamp applied for BitLicense through its U.S. subsidiary.

“Bitstamp has always embraced regulatory efforts that focus on transparency and accountability to help expand the industry and bridge the gap between the traditional financial and cryptocurrency worlds,” Nejc Kodrič, CEO of Bitstamp, said in the release.

With this license, Bitstamp will be able to offer New Yorkers trading options for bitcoin, XRP, ether, bitcoin cash and litecoin through its services. In addition, the exchange is also free to add trading pairs for other digital assets in the future.

NYSDFS established the BitLicense to provide the same level of security to crypto investors as the ones that oversee conventional financial institutions.

Bitstamp USA joins notable financial and crypto service providers such as Square, Coinbase, bitFlyer USA, Circle Internet Financial, XRP II and other crypto companies in the exclusive “BitLicense Club.”

This article originally appeared on Bitcoin Magazine.

China’s Proposed Mining Ban Could Be Detrimental to Bitmain

China Bitcoin

China’s state planning agency, the National Development and Reform Commission (NDRC), has indicated an interest in banning cryptocurrency mining in the country through a notice published online in Mandarin.

The report stated that the NDRC will include cryptocurrency mining activities to a list of sectors that could be shut down based on their violation of local regulations, wastefulness, safety concerns or harmful contributions to the environment. The list includes more than 400 other industrial activities.

The list is part of the NDRC’s Catalogue for Guiding Industry Restructuring. The catalogue was issued in 2005, pointing out the activities and industries which are allowed to grow in the country or those that ought to be restricted or banned outright.

Reuters reported that the draft list has been open for public perusal since April 8, 2019, although the NDRC has not yet set a date for the elimination of cryptomining activities from the state. The draft list shows a distinct representation of the Chinese state’s views on certain industrial policies and activities, and an announcement on the NDRC’s official site claims that members of the general public now have until May 7 to provide their comments on the draft.

China was once seen as a crypto haven, thanks to the country’s abundance of mining hardware and cheap energy. But developments like this make it seem as if the country has grown cold toward industry.

Despite a blanket ban on ICOs in 2017, China has maintained dominance in the cryptomining sector, with some of the world’s biggest mining companies operating from China — most notably, Bitmain. The recent notice by the NDRC has been a long time coming.

Late last year, the Xinhua News Agency reported that a study showed the impact of carbon dioxide emissions on global warming and their potential to increase temperatures by 2ºC as soon as 2033.

A separate report also claimed that authorities had seized hundreds of mining computers, after discovering they were responsible for the abnormal electricity consumption and a potential threat to the proper functioning of local power grids.

In addition, the Leading Group of Internet Financial Risks Remediation called on local governments to direct mining companies to make an “orderly exit” from the market.

The Chinese government has been making massive moves to stem the growth of crypto-based firms in the country for a while. The People’s Bank of China made the historic decision to place a ban on all ICOs back in 2017 and, since then, crypto companies have had to walk on regulatory eggshells.

In January 2018, a report on Bloomberg revealed that the Chinese Central Bank seemed to plan a reduction of the power supplied to bitcoin miners, in a move aimed at forcing them out of the country.

The Beijing-based Bitmain remains one of the largest manufacturers of cryptomining hardware in the world. However, the company has had to endure a torrid two years after its profits and viability were hit hard by the effects of crypto winter.

If this reported ban is enacted, it would mean that Bitmain could lose its business in China, one of its largest markets. This may prompt the company to relocate its business, something that could be difficult given its recent office closures in North America and Europe.

This article originally appeared on Bitcoin Magazine.

Innisfil Becomes First City in Canada to Accept Bitcoin for Municipal Taxes

Canada Bitcoin

Ohio might have made history as the first city to accept cryptocurrency for corporate taxes, but one Canadian town is adding its name to the books by becoming the first in North America to permit its citizens to pay their personal taxes in bitcoin.

The tiny town of Innisfil (with a population of 36,500), situated about 45 minutes north of Toronto, just approved an initiative that will allow its residents to satisfy their municipal taxes (income taxes and property taxes) in bitcoin, beginning in April 2019.

Andrei Poliakov, the founder and CEO of Coinberry, told Bitcoin Magazine that the exchange has been in talks with officials for some months, after Kyle Kemper of the Blockchain Association of Canada connected the private and public entities. A live hearing was held on March 27, 2019, to pass the initiative and it went off without a hitch, Poliakov said.

“The staff, councils and mayor of the town of Innisfil are extremely forward thinking and innovative,” Poliakov enthused. “Coinberry approached the town with a proposal to start accepting property taxes in cryptocurrency and, after several months of discussions, we were able to make Bitcoin history in Canada yesterday!”

Coinberry is poised to play an integral role for Innisfil residents who utilize the new option.

“Payments will be processed through Coinberry Pay, a cryptocurrency payment processing solution developed by Coinberry for use by municipalities, charities, merchants and individuals looking to accept payments, donations or tips in cryptocurrency,” Poliakov said.

The payment solution is hosted by Coinberry but taxpayers will have to go through a government website to pay their taxes. Once a payment is processed through Coinberry, the exchange will convert it to Canadian dollars and then pass it on to Innisfil’s municipal government.

Poliakov told Bitcoin Magazine that the trend has a chance to catch on with neighboring towns as well, and his hopes are to eventually encourage the city council of Toronto to adopt the option. But he and other proponents won’t truly be satisfied until the Bitcoin bug bites every layer of Canada’s political system — all the way up to the federal level.

“The goal with Coinberry Pay in general, and with the current initiative specifically, is to bring about the mass adoption of cryptocurrency as a method of payment in Canada,” said Poliakov. “We are in discussion with a number of parties both within government and the private sector to utilize our solution. Our goal at Coinberry is to make crypto simple — we will continue to expand our cryptocurrency payment processing service to municipalities and other government agencies in the near future. We truly believe in the benefits of mass adoption of cryptocurrency and are working very hard to make that a reality.”

To start, bitcoin will be the only available cryptocurrency option for citizens to break the fiat tax barrier, but Poliakov said that Coinberry Pay will be adding ether, litecoin, ripple and bitcoin cash soon, as well.

The initiative is a significant win for both Canadian citizens and the cryptocurrency industry and, given that an exchange spearheaded the initiative, it’s likely restored some community trust in the industry following the ongoing QuadrigaCX debacle. With a municipal government choosing to place its trust in both Coinberry and bitcoin, the industry and its flagship asset is one step closer to achieving greater understanding and de-stigmatization with the populace at large.

“Once again, we are proud to be first in taking this bold step by offering this new, exciting payment option to our residents,” Innisfil Mayor Lynn Dollin said in a press release. “There’s no doubt that cryptocurrency is growing in usage and popularity. By getting into this now, we are making sure our municipality is ahead of the game, and signalling to the world that we truly are a future-ready and innovative community.”

This article originally appeared on Bitcoin Magazine.

Japan Introduces Stricter Regulation for Crypto Margin Trading

Japan Crypto Regulation

Japanese regulators have reportedly approved draft amendments to the country’s financial instruments and payment services laws, introducing stricter regulations for margin trading of digital assets.

A report by local news publication Nikkei Asia Review noted that the amendments will place a cap on available leverage for crypto margin trading, pegging it at two to four times the initial deposit.

The report, published yesterday, also claimed that all cryptocurrency exchanges that offer margin trading will have to register with Japan’s Financial Services Agency (FSA) within 18 months of the new rules being implemented in April 2020.

Clamping Down on Margin Trading

Margin trading is the use of borrowed funds (often obtained from a financial broker or an exchange) to trade a financial asset. The funds borrowed become collateral for the loan, upon which interest is paid.

The practice of margin trading for cryptocurrencies has become popular in recent years thanks to its potential for significant returns. Platforms such as BitMEX have offered massive leverage on margin trading, increasing their appeal to investors globally. But the potential high yield from such investments can also come with downsides, including the temptation to make large, risky investments with borrowed funds.

Protecting Consumers in a Growing Market

According to the report, the new rules will allow Japan to more closely monitor exchanges in a concerted effort to better protect consumers. Exchanges that offer margin trading and those that issue tokens through Initial Coin Offerings (ICOs) would be separated and regulated differently, for instance. The hope is that this categorization will enable the FSA to clamp down on scam investment opportunities, while also providing a healthy environment for the crypto industry to continue its growth.

For some time now, Japan’s reputation as a crypto haven has been growing, thanks to its seemingly progressive stance on digital currencies.

In October 2018, the FSA approved the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory body that consists of 16 licensed crypto exchange platforms in the country. The group was given the authority to create regulatory guidelines for implementing industry-wide security standards and preventing insider trading.

Prior to the regulator’s approval, the association had proposed a ban on privacy-centric tokens like Monero on crypto exchanges. It also mulled over the idea of holding government bonds to insure cryptocurrencies.

This article originally appeared on Bitcoin Magazine.

Israeli Court Rules Against One-Size-Fits-All Bitcoin Ban by Bank

israel bank regs.jpg

An Israeli court ruled on March 17, 2019, that banks can’t enforce a blanket ban against all accounts linked to cryptocurrency. Instead, the court said, banks need to consider the specific type and scope of crypto-related activity before determining whether or not to open an account.

The case involved a lawsuit begun in May 2018 by Israminers, a bitcoin mining company based in Ukraine, against the Union Bank of Israel. The bank refused to accept deposits into the company’s account, and ultimately shut the account down because much of the money in the account was related to bitcoin.

The bank’s position was that allowing crypto-related activity within accounts that it managed put it at risk of facilitating money laundering. As a result, it decided as early as 2014 to refuse to provide services related to virtual currencies.

The bank argued in court that it had notified the Supervisor of Banks, the Israeli government agency that oversees the banking industry, of its policy and was not told that it would pose a problem.

However, in a March 17, 2019, ruling, judge Limor Bibi wrote that the bank’s policy was too broad, according to the Israeli newspaper Calcalist. It is “unreasonable,” he wrote, for banks to adopt a “sweeping policy” under which they ban all activity related to bitcoin or other cryptocurrency.

That said, Bibi also wrote that banks are within their rights to refuse to provide services for customers operating in the crypto economy if a bank has a legitimate reason to believe that the customers might be seeking to launder money.

In short, then, the court upheld the right of banks to refuse to provide services for crypto-related activities if they might violate the law. But banks can’t ban deposits or accounts simply because they involve crypto.

Broadly speaking, the ruling aligns with the recommendations released earlier this month by Israel’s financial regulator regarding the crypto economy. The report encourages the government to support crypto companies while emphasizing the importance of disclosures and oversight of crypto activity.

This article originally appeared on Bitcoin Magazine.

After QuadrigaCX: New Regulations for Canadian Exchanges Are in the Works

PostQCX regs.jpg

As anxiety grows around every new twist and turn in the ongoing QuadrigaCX drama, along with extensive QuadrigaCX media coverage, Canada’s mainstream media has been calling on the government to bring in better oversight and regulation of cryptocurrency businesses, especially cryptocurrency exchanges.

In response to these calls for more regulation and calls from some crypto businesses for more regulatory clarity, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) released a discussion paper on March 14, 2019, with a “New Proposed Platform Framework” that would aim to specifically tailor regulations to the special risks posed by cryptocurrency exchanges.

The CSA consultation paper, which can be viewed here, asks 22 questions and requests comments from crypto/fintech companies, market participants/investors and other crypto stakeholders about what regulations would best fit in the unique new cryptocurrency marketplace.

When Is a Crypto Exchange a Securities or Derivatives Dealer?

As a number of observers have commented, this round of consultations is mainly about how to define the new business of cryptocurrency exchanges and how far to go in imposing old regulatory models on a new economic system.

Calgary-based securities and cryptocurrency lawyer Matt Burgoyne commented on Twitter:

“There is a lot to unpack in the new CSA consultation paper on cryptocurrency exchanges. Exchanges must consider whether their interactions with users create a derivative contract or futures contract.”

He added, “Non-security tokens trading on Canadian exchanges may be derivatives and still subject to regulation … this is a really detailed set of consultation questions, comments from industry due May 15.”

Lawyer Evan Thomas, who headed up a legal team at Osler, Hoskin & Harcourt LLP to produce a summary of the CSA consultation paper, told Bitcoin Magazine:

“A big issue with this proposal is that it is not clear as a legal matter that Canadian securities regulators have jurisdiction to regulate platforms for trading bitcoin and other crypto-assets that are not securities.”

One of the goals stated in the Osler paper is:

“To ensure that the CSA does not exceed its jurisdiction over the cryptoasset industry, we are hopeful that Platform regulation will provide further clarity regarding types of cryptoassets and related services that are not subject to securities regulation, such as tokens that are not investment contracts or derivatives and non-custodial cryptocurrency wallets.”

Third Time Lucky?

The Canadian government has conducted two previous consultation rounds with the cryptocurrency industry (in 2014 and 2018) but Thomas, who is cautiously optimistic, notes that this new initiative is a more direct response to cases like that of QuadrigaCX.

“Earlier regulation was directed at combating money laundering and terrorist financing. This proposed framework is motivated by investor protection concerns; that is, trying to protect crypto users who use custodial exchanges from risks like hacking, embezzlement and market manipulation,” Thomas explained.

The ghost of QuadrigaCX can be seen in the current discussion paper which asks: What operational requirements should be put in place to prevent a collapse like that of QuadrigaCX? What measures can affect market integrity, fair pricing, disclosure of conflict of interest and business continuity planning?

Would the Proposed Regulations Have Prevented the QuadrigaCX Collapse?

It’s an interesting question whether the proposed regulations in the discussion paper would have prevented what happened at QuadrigaCX — and the answer is likely no.

Amber D. Scott, CEO of Outlier Canada, a cryptocurrency compliance consulting company, told Bitcoin Magazine that without adequate enforcement resources, it’s unlikely the new rules would have affected the outcome.

“Background checks for beneficial owners and executives are useful if they are sufficiently in-depth and acted upon. The QuadrigaCX story is interesting because they were registered with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) at one point (though it’s not clear whether they were up front in their application about the beneficial owners).

“Similarly, proposed audits are useful tools, but I expect that fooling auditors would be possible, especially given that there will be very few experienced auditors that also understand crypto assets at this stage.”

She added that, in many cases, the impact is likely to be a greater cost of compliance burden for companies that choose to operate within these frameworks, and very little for those that do not. “In my estimation, some of the most important (and lacking) resources are those needed to investigate and prosecute bad actors. Fraud is already illegal.”

Clear Regulations Are Good for Crypto Business

Despite this, a number of Canadian crypto exchanges, including Coinsquare and Coinberry, have said they would welcome clear, fair regulations that make it easier to be compliant and will help bring them into the financial mainstream.

The Osler paper highlights the positive benefits of regulation including better relationships with the banking sector:

“By establishing a regulatory regime for Platforms, the Framework may make it easier for Platforms to obtain and maintain commercial relationships with banks and other financial institutions, which remains an ongoing challenge for certain Platforms.”

In addition, clear regulations that apply to crypto asset securities dealers would be an opening for businesses that are currently flying under the radar.

“The Framework potentially opens the door for Platforms that transact in cryptoassets that are securities or derivatives to operate within Canada in a compliant manner. Examples may include Platforms dealing in security tokens or tokenized assets, decentralized prediction markets or other so-called ‘decentralized finance’ (DeFi) activities.”

The proposed regulations will apply to crypto platforms located in Canada, as well as foreign platforms with Canadian participants, which might be eligible for exemptions if they are appropriately regulated in their home jurisdiction.

The CSA is a federal government agency coordinating financial regulations for Canadian capital markets and IIROC is the industry’s self-regulatory organization that oversees investment dealers in Canada’s debt and equity markets.

Comments are due by May 15, 2019.

This article originally appeared on Bitcoin Magazine.