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Relationship Disclosure Information

Last Updated: December 21, 2021
CoinSmart

SIMPLY DIGITAL TECHNOLOGIES INC.

RELATIONSHIP DISCLOSURE INFORMATION

1.                   PURPOSE

This document sets out important information concerning our relationship with you.  It contains information about Simply Digital Technologies Inc. SDT (We, SDT or the Firm), the services that we offer and your account with us. Other important information you need to know about your relationship with us is contained in the Terms of Service that you entered into on our website or mobile application (the CoinSmart Platform), and other disclosures on the CoinSmart Platform.

2.                   AN OVERVIEW OF SIMPLY DIGITAL TECHNOLOGIES INC.

SDT is registered as a restricted dealer in each province and territory of Canada, subject to specific terms and conditions contained in the exemptive relief decision Re Simply Digital Technologies Inc., dated December 21, 2021, which permit SDT to operate a crypto asset trading platform on which Canadian residents can buy, sell and hold crypto assets (crypto) that have been approved by SDT. As such, SDT may not be subject to all of the requirements otherwise applicable to an investment dealer and a member of the Investment Industry Regulatory Organization of Canada, including those that apply to marketplaces and to trading on marketplaces. 

3.                   THE PRODUCTS AND SERVICES WE OFFER

The CoinSmart Platform does not list crypto that are considered securities or derivatives under securities legislation in Canada. However, because we hold crypto beneficially owned by you on your behalf, your account with SDT is a “Crypto Contract” and is considered a security or derivative in Canada.

In addition, the CoinSmart Platform offers a central limit order book on which our clients trade crypto with each other and with us under the terms of our Crypto Contracts, and we are therefore considered to be a marketplace for securities or derivatives in Canada.

Before listing a crypto on the CoinSmart Platform, we perform a product assessment by reviewing publicly available information about the creation, governance and use of the crypto, the supply, demand, maturity, utility and liquidity of the crypto, material technical risks associated with the crypto and legal and regulatory risks associated with the crypto.

The CoinSmart Platform includes a Crypto Asset Statement for every listed crypto here. We will update the Statement if there is a material change in the crypto, including a change in the risk profile or a determination made by a court or regulator that the crypto is a security or a derivative. If this happens, we will de-list the crypto and you will be required to sell it or withdraw it from the CoinSmart Platform.

4.                   CUSTODIAL ARRANGEMENTS

On your behalf, we hold: (i) approximately 80% of the crypto in “cold storage” custody accounts at Bitgo Trust Company (Bitgo) and Coinbase Custody Trust Company (Coinbase Custody) (collectively, the Crypto Custodians) and (ii) approximately 20% of the crypto online or “hot” wallets secured by software provided by Fireblocks Inc. (Fireblocks). Bitgo is a trust company organized under the laws of the state of South Dakota and regulated as a trust company by the Division of Banking in South Dakota. Coinbase Custody is a trust company organized under the laws of the state of New York and regulated as a trust company by the New York State Department of Financial Services.

The Crypto Custodians maintains insurance over its cold storage assets, however, the insurance may not be sufficient to cover all losses. Clients and the Firm may have difficulty repatriating their crypto on the bankruptcy or insolvency of the Crypto Custodians. The Firm has performed due diligence on the Crypto Custodians, including considering the nature of the regulation, status as a “qualified custodian” under Canadian securities legislation, and sufficiency of equity of each Crypto Custodian, and has concluded that Bitgo and Coinbase Custody are appropriate Crypto Custodians.

The Firm licensed software from Digital Assets Services Limited (trading as Coincover) (Coincover) to provide additional security for keys to our Fireblocks hot wallets, including key pair creation, key pair storage, device access recovery and account access recovery. Coincover is based in the United Kingdom and is regulated by the U.K. Financial Conduct Authority. The backup key material held by Coincover is 100% insured against loss or theft by Lloyd’s of London. This insurance does not cover the crypto held in our Fireblocks wallets, but rather the backup key material maintained by Coincover.

We hold fiat cash currency on your behalf in accounts at regulated financial institutions in Canada, the United States and Switzerland (in each case, the Cash Custodian). Fiat is held at the Cash Custodian separate and apart from SDT’s own assets.

The Crypto Custodians and the Cash Custodian (together, the Custodians) are required to segregate client assets from their own assets and are subject to regulatory oversight, minimum capital and insurance requirements. Client assets are subject to risk of loss: (i) if a Custodian becomes bankrupt or insolvent; (ii) if there is a breakdown in a Custodian’s information technology systems; or (iii) due to the fraud, willful or reckless misconduct, negligence or error of a Custodian or its personnel. The Firm has reviewed each Custodian’s reputation, financial stability, relevant internal controls and ability to deliver custodial services and has concluded that such Custodian’s system of controls and supervision is sufficient to manage risks of loss to client assets in accordance with prudent business practice. 

Although client assets are generally held by a Custodian, the Firm has access to client assets held online in hot wallets to the extent necessary to facilitate trading on the CoinSmart Platform. We also have access to client assets when accepting or making delivery of crypto or cash in accordance with client instructions on a temporary basis. Finally, SDT has access to client crypto held in trust on your behalf at the Crypto Custodians because the custody account is in the name of SDT, in trust for our clients. Client assets are exposed to risk of loss: (i) if there is a breakdown in the Firm’s information technology systems; or (ii) due to the fraud, willful or reckless misconduct, negligence or error of the Firm or its personnel. In addition, the Firm is required under applicable securities laws to insure against the additional risk of loss which arises due to its access to client assets.

5.                   RISKS TO CONSIDER WHEN MAKING AN INVESTMENT DECISION

Please see the CoinSmart Platform Risk Statement for a description of the risks to consider when deciding to invest in crypto.

6.                   RISK OF USING BORROWED MONEY TO FINANCE AN INVESTMENT

We do not lend money, extend credit or provide margin to our clients.

You can pay for crypto on the CoinSmart Platform using your credit card, however, the credit is being provided by your credit card company, not by SDT.

Using borrowed money to finance the purchase of crypto, including by using your credit card, involves greater risk than using cash resources only.  If you borrow money to purchase crypto, your responsibility to repay the loan and pay interest as required by the terms of the loan remains the same even if the value of the crypto purchased declines.

7.                   CONFLICTS OF INTEREST

We act as a passive liquidity provider on the CoinSmart Platform (SDT LP) exclusively for the purposes of providing liquidity to our clients. SDT may be a significant provider of resting orders displayed on the CoinSmart Platform at any time.

SDT prices orders based on the pricing available from its liquidity providers, plus a “spread” on such trades, which is the positive difference between the price that SDT pays for crypto assets from its liquidity providers and the price that SDT charges to clients.

SDT may refuse to process or cancel trades entered into with SDT LP, including the following circumstances: (a) to correct an error caused by a system or technological malfunction of the CoinSmart Platform’s systems or equipment or caused by an individual acting on behalf of the CoinSmart Platform; or (b) if required by applicable law, including compliance with anti-money laundering legislation, any court order, or the request of any governmental authority.

Any complaint made by you in connection with an order entered by, or trade executed with, SDT LP on the CoinSmart Platform, will be escalated promptly to SDT’s Chief Compliance Officer (CCO) and Chief Operating Officer (COO). The CCO and COO are authorised to conduct an investigation and, if necessary, implement additional internal controls with respect to the activities of SDT LP to prevent problematic conduct from reoccurring on the CoinSmart Platform.

SDT operates a paid referral arrangement whereby a client of SDT receives a one-time referral fee in consideration for referring each new client to the SDT Platform. Each new client is provided with a Referral Statement that identifies the possible conflicts of interest that may arise in a paid referral arrangement. The Referral Statement is incorporated by reference into this Relationship Disclosure Information.

8.                   COSTS ASSOCIATED WITH YOUR ACCOUNT

SDT charges a fee for Trading, Deposits and Withdrawals (Fiat and Crypto). Complete details are available on the CoinSmart website at www.coinsmart.com/fees/. SDT may also charge a 1% fee (minimum $15 CDN, or the equivalent in other supported currencies on prevailing exchange rates determined by us at such time) should you request a refund prior to executing your first trade on the CoinSmart platform, full details available in the Terms of Service.

SDT may also earn a spread on trades, as described above under “Conflicts of Interest”. The fees and spreads charged by SDT covers the costs of the Crypto Custodians, our liquidity providers, and operational overhead. This fee structure is posted clearly on our website and agreed to when you complete a transaction and provided in the trade confirmation that is emailed to you.

9.                   THE COSTS OF BUYING, HOLDING AND SELLING CRYPTO

Other than the spread and withdrawal fees described above, there are no costs directly paid by you associated with buying, holding and selling crypto on the CoinSmart Platform.

When you buy, hold and sell crypto on the CoinSmart Platform, we earn the spread and withdrawal fees described above.

10.                REPORTING TO YOU

Information about your investments, including trade confirmations, quarterly account statements, annual reports of charges and compensation and investment performance reports, are available in your account portal on the CoinSmart Platform. By entering into the Terms of Service, you are consenting electronic delivery of all reports and documents to which you are entitled to have delivered applicable securities law and under your relationship with SDT. We will notify you when a document is available by posting an electronic message in your account portal. 

11.                COMPLAINTS AND DISPUTE RESOLUTION

Annex A describes the dispute resolute service available to you.

You may have a complaint relating to the conduct of SDT LP which does not involve a claim for compensation. Issues relating to the conduct of SDT LP may also be identified through SDT’s market surveillance program. All complaints and issues relating to SDT LP will be escalated immediately to SDT’s CCO and COO. The CCO and COO are authorised to conduct an investigation and, if necessary, implement additional internal controls with respect to the activities of SDT LP to prevent problematic conduct from reoccurring on the CoinSmart Platform.

12.                KYC AND APPROPRIATENESS

SDT performs an appropriateness assessment prior to opening an account, on an ongoing basis and at least annually. SDT does not give advice or recommendations regarding crypto, including the suitability of crypto transactions.

We gather know your client (KYC) information about your experience and knowledge in investing in crypto assets, your financial assets and income, and your risk tolerance. We use this information, together with our product assessments of all crypto that is listed on the CoinSmart Platform, to determine whether an account is appropriate for you. If we do not think an account is appropriate for you, we will send you a prominent message that this is the case.

We also use your KYC information to recommend a loss limit for your account, and we may remind you of your loss limit from time to time. We won’t implement the loss limit by liquidating assets from your account, however, you can enter stop loss orders at any time to implement your loss limit. You should not rely solely on our reminders regarding your loss limits. You are encouraged to independently monitor your account on an ongoing basis so that you are fully aware of the value of your account and the terms or losses of your investments.

13.                YOUR RELATIONSHIP WITH US

We are required to determine that an account on the CoinSmart Platform is appropriate for you and to put your interests first. You should promptly advise us of any change to your KYC information that could reasonably result in a change the appropriateness of your account, such as a change to your financial assets and income or risk tolerance.