Canadian securities regulators are taking a major step toward a regulatory framework for the fledgling crypto sector by enshrining requirements for crypto investment funds — that have been developed on a case-by-case basis — into rules.
The Canadian Securities Administrators (CSA) are adopting changes to the fund rules that will codify the practices adopted through the prospectuses review and approval process for crypto funds, along with exemptions that have been granted to these funds as regulators allowed these novel funds into the investment market.
Incorporating these provisions into the rules “will provide investment fund managers with greater regulatory clarity concerning investments in crypto assets,” the CSA said in a notice detailing the rule changes.
For instance, the rules will now spell out criteria for the types of cryptoassets that regulated investment funds are allowed to hold, set restrictions on investing in crypto assets for crypto funds and traditional investment funds, and establish custody requirements for cryptoassets.
“By implementing regulations around crypto asset offerings, we aim to provide guardrails in this evolving sector,” said Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC), in a release.
In its notice, the CSA said that the goal of the rule changes “is to facilitate new product development while also ensuring that appropriate risk mitigation measures are built directly into the investment fund regulatory framework.”
The adoption of rules for crypto funds represents the second phase of what the CSA has envisioned as a three-phase process for developing crypto regulation.
Phase one involved the regulators issuing guidance to help fund managers and crypto funds comply with existing requirements, and detailed regulators’ concerns when it came to crypto-specific compliance issues.
The rule changes published today represent phase two of the project. The third and final phase will involve the regulators undertaking a public consultation on a more comprehensive regime for crypto funds.
Today’s changes were issued for consultation in January 2024. The CSA noted that it has made a number of revisions as a result of that consultation, but that it deems those changes as non-material, so another public consultation isn’t needed.
Assuming that the required government approvals are received, the rule changes will take effect on July 16.