Coinberry second crypto asset dealer to receive regulatory approval by OSC

Coinberry

Toronto-based Coinberry Limited has become just the second crypto asset dealer to receive regulatory approval by the Ontario Securities Commission (OSC).

In an order released August 19, the OSC has granted Coinberry a two-year window to operate its platform in Ontario; Coinberry has also received approval from the Canadian Securities Administrators (CSA) to operate in all Canadian provinces and territories. The company told BetaKit that it plans to make a public announcement of the decision Monday, August 23.

The decision comes almost one year to the day after Canadian FinTech leader Wealthsimple received the first such order. The company received conditional approval from the CSA through its Sandbox program to test the platform for a period of two years.

“The last thing that anybody wants is another Quadriga in Canada.”
– Andrei Poliakov, Coinberry CEO
 

“We’re pleased to see another Canadian cryptocurrency trading platform adopt investor protections similar to the requirements that Wealthsimple Crypto has operated under for over a year,” Evan Thomas, Head of Legal at Wealthsimple Crypto, told BetaKit in a statement. “Canadians are still waiting to see the impact of regulatory standards being consistently applied across the industry. We hope regulators will ensure other platforms bring themselves into compliance with Canadian securities laws very soon.”

To Coinberry co-founder and CEO, Andrei Poliakov, Wealthsimple is “is in a different business altogether.”

“Crypto is sort of like an add-on for them, whereas we’re the first pure crypto play in Canada [to be regulated],” Poliakov told BetaKit. “It’s important for me to note that this is the first company that’s actually gotten the [regulatory approval] from the commissions that really was born out of the industry, as opposed to … sort of being an add-on.”

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Founded in 2017, Toronto-based Coinberry claims to be “the easiest and safest way” to buy and sell Bitcoin, Ethereum, Litecoin, XRP, and Bitcoin Cash. Importantly, and unlike Wealthsimple, Coinberry is an open-loop crypto asset trading platform, meaning users can bring crypto assets onto and off the platform for DeFi or personal custody purposes. Vancouver-based Netcoins had applied to be regulated via the British Columbia Securities Commission (BCSC) and the CSA’s regulatory sandbox program early last year, with hopes of being the first regulated open-loop crypto asset trading platform in Canada.

Poliakov attributed Coinberry’s pure-play pole position to a longstanding commitment the company has made to fall in line with provincial and federal regulation. The CEO said the company first applied for regulatory approval in 2018, and was one the first to register with FINTRAC, the Canadian federal agency tasked with facilitating the detection and investigation of money laundering.

While this early commitment has allowed Coinberry to leap ahead of other Canadian crypto hopefuls, Poliakov was clear that compliance is an industry necessity. “At the end of the day, the last thing anybody wants is another Quadriga in Canada,” he said.

To that end, Coinberry’s CEO described the regulatory process as more of an organic process of building trust than demonstrating a checklist of compliance standards.

“Ultimately, the OSC felt comfortable to give our company [regulatory] approval,” Poliakov said. “They’ve been working with us as much as we’ve been working with them.”

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Regulatory compliance will come with constraints for investors and cryptocurrencies on the Coinberry platform.

The OSC order groups crypto investors into three categories: accredited, eligible, and non-accredited or eligible crypto investors. To be considered accredited, individual crypto investors must possess a minimum of $5 million in net assets, a net income before taxes of $200,000, and $1 million in financial assets. To qualify as eligible, individuals must own at least $400,000 in net assets, and a net annual income before taxes of over $75,000.

According to the ruling, companies and individuals also qualify as accredited investors if they fall under the definition of “accredited investor” outlined by the Ontario Securities Act or Canada’s Prospectus Exemptions.

The order also mandates limits on the total amount certain types of crypto investors outside Alberta, British Columbia, Manitoba, and Québec may buy or sell using Coinberry’s platform on an annual basis. Non-eligible or accredited investors will be allowed to buy or sell up to $30,000 worth of crypto per year, while eligible investors who are not accredited investors will be capped at $100,000. Accredited investors will not face a maximum.

For Coinberry, these limits will apply to all cryptocurrencies except for Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Poliakov said Coinberry plans to roll out these limits “in the coming days.” Regulators have also prohibited Tether altogether.

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Unlike Wealthsimple’s order, Coinberry will also be required to conduct a trade-by-trade suitability assessment for each client. As part of that process, Coinberry will be required to provide users with risk statements that clearly outline the risks associated with crypto contracts and assets, as well as the manner in which those assets are held (Coinberry is not a member of the Canadian Investor Protection Fund, and assets on the platform will not qualify for CIPF protection).

“We have in place a financial bond that we put as part of the registration process which provides insurance for internal fraud that may happen with internal employees to protect customer assets,” Poliakov explained. “We do work with a qualified custodian to actually custody the assets that we hold on behalf of our users, so we have over $200 million worth of insurance through our custodian.”

In February, Coinberry entered into a letter of intent (LOI) with Cinaport Acquisition Corp III for a qualifying transaction to become publicly listed on the TSX Venture Exchange (TSXV). Poliakov told BetaKit that regulatory approval was a requirement to be listed on the TSXV, and that plans are “very much in place” to list later this year.

“It means a lot, not just for Coinberry, but for the industry as a whole in Canada,” said Poliakov. “This is the first time a pure crypto play actually gets [regulatory approval] from the Ontario Securities Commission, from all of the commissions, to provide a safe, reliable, compliant, registered trading experience and exposure to crypto in Canada.”

“We have given Canadians a safe, compliant, embedded platform now to actually get exposure to crypto, not only as an investment class but as an actual utility.”

With files from Josh Scott.

Update (08/23/21): Following the publication of this article, a Coinberry representative contacted BetaKit to clarify that CEO Andrei Poliakov’s statements regarding a ‘seal of approval’ are related to regulatory permission and not a claim that the OSC or any other Canadian security commission had passed on the financial standing, fitness, or conduct of the company (such statements are prohibited by the Ontario Securities Act). This article has been updated to note and reflect that clarification.

Douglas Soltys

Douglas Soltys

Douglas Soltys is the Editor-in-Chief of BetaKit and founder of BetaKit Incorporated. He has worked for a few failed companies and written about many more. He spends too much time on the Internet.