Aux Caves FinTech latest target as Canadian securities commissions continue to crack down on crypto asset firms

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Securities commissions across the country continue to grapple with a wave of crypto asset firms failing to comply with Canadian securities law.

From British Columbia to Quebec, the commissions have flagged a number of businesses that lack the authority to trade in Canada.

In August alone, the Ontario Securities Commission (OSC) flagged four different companies: Aux Caves FinTech Co. Ltd. from the Seychelles; Polo Digital Assets, Ltd. (Poloniex) operating in the Seychelles; Bybit Fintech Limited (Bybit) from the British Virgin Islands; and Mek Global Limited, incorporated in the Republic of Seychelles, and PhoenixFin Pte. Ltd., incorporated in Singapore, (collectively, KuCoin).

More than 70 platforms have initiated compliance discussions with Canadian securities regulators. Almost a quarter are based outside of Canada.

The OSC issued a warning to crypto asset trading platforms on March 29 that they must contact OSC staff or face potential regulatory action. Platforms were given until April 19, 2021 to discuss how to bring their operations as a dealer or marketplace into compliance.

Additionally, the OSC stated that platforms that allow access to Ontarians are regarded by the OSC as operating in Ontario for the purposes of securities regulation.

To date, more than 70 platforms have initiated compliance discussions with Canadian securities regulators. Almost a quarter of these platforms are based outside of Canada.

Staff are working with and obtaining more information from the firms that have initiated compliance discussions with the OSC, in order to assess the appropriate path to registration.

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To date, there is only one crypto asset dealer registered with Canadian securities regulators, Toronto-based Wealthsimple (update: there’s now two).

Wealthsimple announced plans to expand into crypto trading in July 2020. The company received conditional approval from the Canadian Securities Administrators (CSA) through its Sandbox program to test the platform for a period of two years.

Wealthsimple Crypto is now regulated by 13 provinces and the federal government.

The OSC said it will continue to take action against non-compliant crypto asset trading platforms and are in contact with international securities regulators to exchange information to support enforcement action.

Last March, the Canadian Securities Administrators – the governing body for the securities commissions – outlined disclosure expectations for crypto asset companies.

“The crypto asset industry is relatively nascent and notably presents unique accounting issues and auditing challenges,” Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers, said at the time of the release.

The notice outlined the disclosure expectations of CSA staff in key areas such as safeguarding crypto assets, the use of crypto asset trading platforms, risk factors, material changes and promotional activities.

The OSC is not the only Canadian commission working to corral the international crypto asset companies. Quebec’s Autorité des marchés financiers (AMF) issued a warning on one company in August, while the British Columbia Securities Commission (BCSC) flagged three.

One company, Cryptlogger, drew cautions from both the Quebec and B.C. commissions, as well as from the Investment Industry Regulatory Organization of Canada, and the Mutual Fund Dealers Association.

Among other things, Cryptlogger falsely claimed to be an AMF-regulated investment and crypto-asset management company, while in B.C. it claimed to have offices in Vancouver and represented itself as “a crypto-asset management company offering high-growth investment opportunities in cryptocurrency.”

Cryptlogger’s website is no longer operational having been replaced with a message that says the account is suspended.

“Unregistered crypto-asset trading platforms expose Ontario investors to significant risks, including potential loss, theft and misuse of their assets,” Grant Vingoe, chair and CEO at the OSC, said earlier this year. “The recent explosion of unregistered platforms has magnified these risks.”

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One of the higher-profile cases of a Canadian crypto asset company running afoul of the authorities occurred in 2020, when the OSC alleged Toronto-based crypto trading platform Coinsquare engaged in market manipulation and misled its clients.

Since then, Coinsquare overhauled its leadership and streamlined its business plan and technology, launching its crypto platform Quick Trade in February. In March, Coinsquare entered into an agreement with the Canada Revenue Agency to hand over information pertaining to its clients’ account history and trading data, in an unrelated case.

In its second-quarter 2021 highlights, released August 11, the Vancouver-based FinTech company Mogo said that between April and June it acquired approximately 39 percent of Coinsquare, along with certain option and warrant rights, for approximately $110.2 million CAD.

“The equity investment in Coinsquare is consistent with our belief in the disruptive capability of cryptocurrencies and its importance in a comprehensive digital wallet for the next generation of Canadians,” Mogo reported.

Feature image courtesy Unsplash.

Charles Mandel

Charles Mandel

Charles Mandel's reporting and writing on technology has appeared in Wired.com, Canadian Business, Report on Business Magazine, Canada's National Observer, The Globe and Mail, and the National Post, among many others. He lives off-grid in Nova Scotia.