From Liquitrade's Unauthorized Operations to Examining Canada's Cryptocurrency Regulatory Policies and Market Compliance Challenges
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From Liquitrade's Unauthorized Operations to Examining Canada's Cryptocurrency Regulatory Policies and Market Compliance Challenges
As of March 2024, Canada has banned four cryptocurrency exchanges, while 15 cryptocurrency trading platforms have been authorized to operate in the region.
Navigating Web3 tides with focused insightsAuthor: Aiying Ai
Recently, the British Columbia Securities Commission (BCSC) took action against the Latoken platform operated by Liquitrade Ltd., finding that it was illegally operating in British Columbia without registration. Users were not actually trading real cryptocurrency assets, but rather contractual rights to those assets. This incident not only reveals misconduct in the market but also highlights the importance of regulating crypto assets.
1. Incident Review
Liquitrade Ltd. provided cryptocurrency trading services to users through the Latoken platform. However, the BCSC investigation found that users were not buying or selling actual cryptocurrency assets, but rather trading contractual rights to these assets. These contractual rights are classified as derivatives, and since Liquitrade was not registered with the BCSC, its operations were deemed illegal. The BCSC stated that Liquitrade failed to participate in the investigation as required and may face sanctions including fines and market prohibition orders.
As of March 2024, Canada has banned four cryptocurrency exchanges: Catalyx, KuCoin, Poloniex, and xt.com. On the other hand, 15 cryptocurrency trading platforms have been authorized to operate in the region, including Bitbuy, Coinbase, and Fidelity.
Sanctions against LiquiTrade could range from fines to service bans.
Source: bcsc.bc.ca
Timeline for submitting sanctions against LiquiTrade. According to court documents, sanctions against LiquiTrade will be finalized by August 14. While Canada cracks down on unregistered cryptocurrency exchanges, Aiying Ai observes that licensed trading platforms continue to thrive.
2. Canada’s Crypto Asset Regulatory Framework
Aiying Ai provides a brief overview of Canada's crypto regulatory policies—crypto asset regulation in Canada is primarily overseen by the Canadian Securities Administrators (CSA) and the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
1. Key Regulatory Bodies:
CSA (Canadian Securities Administrators):
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Responsibilities: The CSA oversees the registration and regulation of all businesses offering crypto asset trading, custody, advisory, or management services, ensuring compliance with the Securities Act of Canada. The CSA has issued multiple policy documents and guidance materials to help firms understand and comply with applicable rules. For example, the CSA’s 2021 Regulatory Framework clearly states that crypto asset trading platforms must register with the CSA before commencing operations.
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Licensing System: The CSA does not directly issue licenses but requires crypto asset trading platforms to register and comply with relevant regulations. Unregistered firms face severe penalties, including substantial fines and market prohibition orders.
FINTRAC (Financial Transactions and Reports Analysis Centre of Canada):
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Responsibilities: FINTRAC is responsible for anti-money laundering and counter-terrorist financing (AML/CFT), requiring businesses to implement strict Know-Your-Customer (KYC) procedures and regularly report suspicious transactions.
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AML/CFT Regulations: In 2019, FINTRAC updated provisions under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, further strengthening oversight of crypto asset trading platforms, mandating their registration with FINTRAC and submission of AML reports.
2. Key Regulations and Requirements
Registration and Licensing Requirements:
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All crypto asset service providers must register and comply with the Securities Act of Canada. The Act stipulates that any entity providing financial services without registration faces severe penalties, including heavy fines and market prohibition orders.
Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT):
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FINTRAC requires businesses to conduct KYC checks and report suspicious transactions.
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The 2019 amendment to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act mandates that crypto asset trading platforms register with FINTRAC and submit regular AML reports.
Investor Protection:
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The CSA protects investors through education and risk warnings, regularly publishing lists of high-risk platforms.
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The CSA’s official website maintains a list of unregistered high-risk crypto asset trading platforms to warn investors about potential risks.
3. Compliance and Penalties
Compliance Requirements:
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Before offering crypto asset services, businesses must register with both the CSA and FINTRAC and comply with applicable AML/CFT regulations.
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Firms must establish robust compliance systems, including regular employee training, strict KYC procedures, and ongoing communication with regulators.
Penalties for Non-Compliance:
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Unregistered entities may face strict enforcement actions from the CSA and FINTRAC, including fines, market prohibition orders, and criminal liability.
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For example, Liquitrade Ltd. was penalized by the BCSC for operating the Latoken platform without registration and may face sanctions such as significant fines and market prohibition orders.
Aiying Ai concludes that Canada has established a relatively comprehensive framework for crypto asset regulation, supported primarily by the Securities Act and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, with oversight conducted by the CSA and FINTRAC. While current policies have achieved notable success in protecting investors and maintaining market transparency, they still require continuous updates and improvements to address emerging risks and market developments.
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