Canada & U.S.: Progress On Cryptocurrency Securities Regulation

In the cryptocurrency space, the magic word is nuance. This March, both Canadian and the United States' securities regulators have displayed increasingly nuanced positions on digital tokens and the platforms on which they are transacted.

Canada

On March 14, 2019, the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada (IIROC and together, Regulators) jointly published Consultation Paper 21-402 — Proposed Framework for Crypto‑Asset Trading Platforms (Consultation Paper). The purpose of the Consultation Paper is to solicit "feedback from the financial technology community, market participants, investors and other stakeholders on how requirements may be tailored for" platforms that facilitate the buying and selling or transferring of crypto assets (Platforms) operating in Canada or having Canadian participants.

The Consultation Paper: (i) contains general discussion on the nature of crypto assets, application of securities legislation, risks and international regulatory approaches; and (ii) sets out the Regulators' proposed framework for Platforms (Proposed Framework).

The application of the Proposed Framework, though context-dependent, broadly includes:

the application of marketplace requirements the application of dealer requirements investment dealer registration and IIROC membership recognition as an exchange certain derivatives requirements. In connection with the Proposed Framework, the Consultation Paper seeks written comments on the following:

custody and verification of assets price determination surveillance of trading activities systems and business continuity planning conflicts of interest insurance clearing and settlement. Written submissions on the consultation questions identified throughout the Consultation Paper are due by May 15, 2019 (Consultation Deadline).

United States

On March 7, 2019, the Securities and Exchange Commission (the SEC) published a letter (the Clayton Letter) from its Chairman, the Honorable Jay Clayton (the SEC Chair). In the Clayton Letter, the SEC Chair, writing in response to a letter from Congressman Ted Budd dated September 28, 2018, reinforced previous public statements by the SEC regarding its nuanced approach to determining whether digital tokens constitute securities. In his writing, the SEC Chair touched on the following key points:

to determine if a digital token is an investment contract, the SEC will: consider the facts and circumstances, including...