This past week, Binance decided to withdraw from the Canadian market. According to them, the regulators, namely the Canadian Securities Administrators(CSA) – have made the market “no longer tenable” for the exchange. As you can imagine, this has caused widespread FUD among the community. Many believe that strict crypto regulations in Canada may have killed the industry altogether. Fortunately, the truth cannot be further from the truth. In this article, we will see how regulations are not only creating a safe environment for crypto investors but also provides an opportunity to strengthen our ecosystem for the industry to succeed.
Crypto Regulations In Canada: What Happened With Binance?
In February 2023, the Canadian Securities Administrators (CSA) released a new set of regulations for crypto asset trading platforms (CTPs). The platforms must adhere to these regulations or cease operations in Canada. The regulations include a range of requirements and “commitments” that the exchanges must fulfill as part of the pre-registration undertaking (PRU) and the actual registration processes, such as:
- Segregation in crypto custody: This means that exchanges must separate or segregate client assets from the exchange’s own assets. This is a measure to protect the client’s assets in the event of the exchange’s insolvency.
- Appointment of a Chief Compliance Officer: The exchanges are required to employ a knowledgeable chief compliance officer. This is to ensure compliance with the regulatory requirements and risk management guidelines are understood and managed.
- No Leveraged Trading: Exchanges are required to refrain from offering leveraged trading. Leveraged trading is a high-risk financial strategy that allows investors to trade with leverage, using capital they don’t have.
- Prohibition of Stablecoins: The new guidelines prohibits the sale and holding of stablecoins.
These rules apply unless the CSA grants specific permissions otherwise. The updates are in response to the recent turbulence in crypto markets and aim to protect Canadian investors, especially when they trade through unregistered CTPs, often based overseas.
Suppose a CTP fails to comply with these new regulations. In that case, the CSA expects it to stop serving Canadian customers and implement measures to prevent Canadian users from accessing its products or services.
Several crypto trading platforms have exited the Canadian market in response to the CSA’s supposed stringent actions. The most prominent ones are Binance, OKX, and DyDx.
Why do these crypto regulations in Canada exist?
The urgent need for regulation comes after disastrous 2022, which saw institutions like FTX, Celsius, Three Arrown Capital, Voyager, BlockFi, Terra/Luna all crash and burn as the industry suffered from the so-called “crypto contagion.” As institutions burned through billions of dollars, several people lost their savings.As regulators, they are responsible for protecting their citizens from such financial implosions.
The absence of regulations in the cryptocurrency market poses significant concerns beyond fraud and operational failures. It risks destabilizing traditional banking systems and complicating monetary policy implementation. Plus, let’s not forget all the news headlines about hacks and market crashes that leave people out of pocket. The digital security side of things is also a bit of a battlefield, with ransomware running wild and begging for serious solutions.
Cryptocurrencies also present the potential for facilitating illicit activities such as money laundering, tax evasion, terrorist financing, ransomware crimes, and human trafficking. kidnappings. Don’t forget, North Korea is funding its nuclear program using cryptocurrencies stolen by state-sponsored hackers.
Debates about regulation often ignite fiery disagreements, as regulatory bodies and crypto platforms commonly find themselves on opposing sides. Yet, it’s pretty clear that enforcing rules can alleviate numerous hazards linked to the crypto industry. Such measures help in battling scams, beefing up security protocols, setting up universal benchmarks, and fostering increased openness.
Balancing Regulation with Industry Innovations
Regulations in any industry can have far-reaching consequences, even if they’re well-intentioned. Regulators and industry leaders must collaborate and balance protecting consumer interests and promoting innovation, ultimately benefiting the economy. We must carefully evaluate feasibility, reasonableness, and protection through open communication and fair planning.
Creating an overtly hostile environment can hinder growth and drive innovation overseas. However, we’ve seen in other heavily regulated industries like automobiles and pharmaceuticals that moderate regulation can actually foster innovation. This means that the cryptocurrency market has the potential to thrive in regulated environments and may even perform better. Implementing regulations would ensure fair advertising, transparency, and auditable standards, which would help establish trust with consumers.
How CoinSmart Ensures Crypto Compliance
CoinSmart has always been a proponent of bringing solid regulatory frameworks into the crypto sector. We have been working closely with Canadian regulators over the last several years to help foster a positive crypto ecosystem. CoinSmart prides itself on taking proactive measures to stay ahead of the game when it comes to compliance:
- We are maintaining an active registration with the CSA.
- Being a publicly-traded company, we are obligated to go through regular audits and offer complete transparency into our finances and operations, which includes proof of reserve verifications.
- Every single coin we have listed goes through a robust know-your-product (KYP) assessment. Our team carefully researches the coin and checks whether several factors, such as – how centralized the coin is, if it qualifies as a security, how secure the underlying protocol is, etc. This is to ensure that all crypto assets that are listed on the platform do not pose risks to the firm and our clients.
- Lastly, CoinSmart has also participated in several self-regulatory initiatives by the crypto industry. For example, in 2022, CoinSmart officially joined the Travel Rule Universal Solution Technology (TRUST) to boost its anti-money laundering (AML) efforts and have partnered with an industry-approved service provider to ensure we meet these obligations.
“CoinSmart has been specifically designed to suit the Canadian market. Our business model has been tailor-made to fit the country’s regulatory framework,” said Justin Hartzman, CoinSmart Co-Founder and CEO. “I personally believe that regulations are not only needed, but they are critical for the long-term growth of our industry. This is why, CoinSmart actively participates in regular dialogue with industry regulators along with other registered platforms to pave the best way forward.”
FUD vs Reality
Of course, Binance leaving Canada was inevitably going to lead to a lot of FUD. Let’s address the two biggest FUDs here:
FUD #1: Canadians now have no place to trade cryptocurrencies
Following Binance’s exit, we saw several messages on Twitter like this:
Let’s resolve this once and for all.
Cryptocurrency trading platforms like CoinSmart are still operating out of Canada and going strong. You don’t need to worry about us suddenly packing things and going home since we have been built specifically for the Canadian market. We are proudly Canadian, and we proudly serve the Canadian crypto community.
FUD #2: The Canadian crypto scene is dead
The Canadian government and regulators are not “anti-crypto,” and neither is the country’s crypto scene dead. As mentioned before, one can make an argument that by creating a strong framework, the regulators are laying down the foundation for a thriving crypto ecosystem. Remember, we DO NOT want another FTX/Celsius/3AC debacle. The industry needs to mature, and regulations are the way to do it.
In closing, we have another quote by our CEO Justin Hartzman, that perfectly sums up our sentiment:
“Crypto regulations in Canada are not a roadblock but rather a guiding light for the industry. While they challenge us to innovate responsibly, they simultaneously foster trust and stability. At CoinSmart, we see this as an opportunity for growth rather than an obstacle. We believe in a crypto future where regulation and innovation coexist, leading to a thriving ecosystem not only for CoinSmart but for the Canadian crypto community at large.”
Disclaimer: The contents of this blog are strictly for information purposes only. All of the opinions expressed in this blog are not connected to CoinSmart and are not intended to provide you with investment advice. It is important that you do your personal research and/or consult an investment advisor to determine what is right for you.