The ASC works with market participants who are engaged in using technology in new ways to understand how securities laws may apply to their ideas and proposed innovation.
CSA Regulatory Sandbox
ASC staff engage collaboratively through the Canadian Securities Administrators' (CSA) Regulatory Sandbox Committee – a cooperative initiative supporting financial technology (fintech) businesses looking to offer innovative products, services and applications in Canada.
For further information, please contact Denise Weeres, Director, New Economy or other members of the ASC Regulatory Sandbox team at regtechsandbox@asc.ca.
International Affiliations
In addition to participating on the CSA Regulatory Sandbox committee, ASC staff participate with various national and international regulators in formal and informal collaboration respecting fintech. Formal fintech networks include:
- International Organization of Securities Commissions (IOSCO) ICO Network
- International Organization of Securities Commissions (IOSCO) Fintech Network
- North American Securities Administrators Association (NASAA) Fintech Committee
- Global Financial Innovation Network (GFIN).
Do Alberta securities laws apply to crypto-assets?
Crypto-assets, commonly referred to as cryptocurrency, have captured significant attention. Crypto-assets are digitally represented assets that typically rely on cryptography and blockchain or distributed ledger technology. They are generally referred to as coins or tokens. Some of the more common crypto-assets include Bitcoin, Litecoin and Ethereum.
Alberta securities laws can apply to the trading of a crypto-asset in a variety of circumstances.
Crypto-assets are sometimes referred to by names such as “utility token", “payment token”, “virtual asset”, “digital currency” or “stablecoin”. The name given to the crypto-asset does not determine whether or not it is subject to Alberta securities laws. It is important to consider the definitions of “security” and “derivative” in Alberta securities laws, having regard to the characteristics of the crypto-asset itself, as well as the way it may be offered or traded. See the full definitions of those terms in the Securities Act (Alberta).
Generally, Alberta securities laws will apply to a crypto-asset if:
- The crypto-asset itself meets the definition of “security”. For example:
- It has the characteristics of a commonly known security, such as a share or a unit of an investment fund, or
- It meets at least one of the many other prongs of the definition of security:
- A document constituting evidence of title to or interests in the capital, assets, property, profits, earnings, or royalties of a person or company.
- A bond, debenture, note or other evidence of indebtedness.
- A profit sharing agreement.
- Evidence of an option, subscription or other interest in or to a security.
- The crypto-asset is offered or sold in a manner that creates an “investment contract” (See the guidance in CSA Staff Notices 46-307 and 46-308, described below)
- The crypto-asset is one of the assets in an investment pool offered to investors.
- The crypto-asset itself meets the definition of “derivative”, for example, as an option, swap, forward contract or other financial instrument whose market price is derived from an underlying price, value or thing.
- The crypto-asset is traded in a manner that creates a derivative or a security, for example, by a platform that holds custody of the crypto-asset such that the client only has a contractual right or claim to the underlying crypto asset. (See the guidance in CSA Staff Notice 21-327, described below.)
In addition, the fraud and market manipulation prohibitions of Alberta securities law may be engaged in respect of a crypto-asset that is the underlying to a derivative.
CSA Staff Notice 46-307 Cryptocurrency Offerings provides guidance as to how securities law applies to crypto-assets. CSA Staff Notice 46-308 Securities Law Implications for Offerings of Tokens provides additional guidance respecting when a crypto-asset offered in an initial token offering or initial coin offering will be considered an investment contract and therefore a security. Although they may be labelled ‘utility tokens’ the offering of tokens under an initial coin offering or an initial token offering has generally appeared to constitute a sale of securities.
If a crypo-asset is a security, it can be sold either with a prospectus or relying on one of the available prospectus exemptions or discretionary exemptive relief. Although securities sold under a prospectus are generally freely tradeable in a secondary market, resale restrictions apply to securities sold under prospectus exemptions. So unless discretionary exemptive relief is sought and obtained, crypto-assets sold under prospectus exemptions would not be available for secondary trading.
Alberta securities laws require that persons or companies that are “in the business” of trading securities or derivatives be registered as dealers. For example, online platforms that offer for sale crypto-assets that are securities or derivatives or facilitate the trading of securities or derivatives will generally be required to register as a dealer and, in some circumstances, will be subject to the requirements applicable to marketplaces.
Even if a particular crypto-asset is not itself a security or a derivative, it is possible that the way it is traded on a crypto-asset trading platform (or cryptocurrency exchange) might create a derivative or a security and require the platform to comply with securities law requirements applicable to dealers and marketplaces. This will typically be the case where a platform holds custody of the crypto-asset on behalf of a client and does not immediately deliver it to the client such that the client only has a contractual right or claim to the underlying crypto asset.See CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets for further details.
As with any investment, it’s important to do your own research and be aware of any risks associated with the investment. Crypto-assets remain speculative, high-risk propositions for a number of reasons. At this time, most platforms that trade crypto-assets are not registered as dealers under securities law in Canada and investors do not have the protections they would expect with a regulated dealer or marketplace.
Investors should make sure they fully understand how crypto-assets work, know the many types of risk involved and understand that they may lose the entire value of their investment.
You should determine whether the crypto-assets involved would be considered to be a security or a derivative under Canadian securities laws and the laws of any foreign jurisdiction where you intend to do business or have clients, or whether a derivative or security might be created. See “Do Alberta securities laws apply to crypto-assets” above. In Canada, if securities or derivatives are being traded, registration as a dealer or advisor will typically be required. Canadian Securities Administrators Staff Notice 46-307 Cryptocurrency Offerings provides some relevant guidance. National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and its Companion Policy address the requirements for registration and provide some guidance as to when registration may be required. You should seek the advice of a securities lawyer to assist you in determining the application of any legal requirements, and how you would be able to meet those legal requirements.
You should determine whether any of the crypto-assets you intend to make available for trading on the platform would be considered to be a security or a derivative under Alberta securities laws and the laws of any other jurisdiction where you intend to do business or have clients. See “Do Alberta securities laws apply to crypto-assets” above. Even if a particular crypto-asset is not a security or a derivative, it is possible that the way it is traded on a platform (or cryptocurrency exchange) e.g. if the platform holds the crypto-asset on behalf of a client, might create a derivative or a security and require the platform to comply with securities law requirements applicable to dealers and marketplaces. See CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets for further details.
Joint CSA/IIROC Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms provides guidance on the regulatory requirements that would typically apply to a crypto-asset trading platform. You should seek the advice of a securities lawyer to assist you in determining the application of any legal requirements, and how you would be able to meet those legal requirements.
You should determine whether the coin or token you intend to offer would be considered to be a security or a derivative under Alberta securities laws and the laws of any other jurisdiction where you intend to offer the coin or token. In Canada, if the coin or token is a security, you will need to consider and comply with the prospectus requirement or rely on a prospectus exemption. Canadian Securities Administrators Staff Notice 46-307 Cryptocurrency Offerings and CSA Staff Notice 46-308 Securities Law Implications for Offerings of Tokens provides some relevant guidance in determining whether or not the coin or token is a security by virtue of being an “investment contract”. See also “Do Alberta securities laws apply to crypto-assets” above.
If it is a security, National Instrument 45-106 Prospectus Exemptions sets out most of the available prospectus exemptions. To date, most such offerings appear to be conducted under the "accredited investor" and "offering memorandum" prospectus exemptions in National Instrument 45-106 Prospectus Exemptions. See “Common capital raising exemptions” for further details. If the coins or tokens are securities and are being offered through a website or portal, e.g. a crypto-asset trading platform (cryptocurrency exchange), the dealer and/or adviser registration requirements, discussed above, will typically apply to the platform/exchange. Note that the securities/tokens issued will be subject to resale restrictions and, in the absence of discretionary exemptive relief, cannot be freely traded in a secondary market such as that typically provided by crypto-asset trading platforms. You should seek the advice of a securities lawyer to assist you in determining the application of any legal requirements, and how you would be able to meet those legal requirements.