Canada bans retail investors from trading crypto with leverage
Canada’s financial regulator is rolling out new rules that will make it more difficult for retail investors to trade cryptocurrencies using leveraged bets in the aftermath of the FTX collapse.
The Canadian Securities Administrators (CSA) plans to strengthen its oversight of cryptocurrency exchanges operating in the country. As part of a basket of new registration requirements, crypto applicants will have to agree to tighter rules, including a ban on margin and leverage trading.
Additionally, the proposal prevents crypto providers from accepting payments via credit cards, and requires them to keep customer assets segregated from their own operational funds.
These measures also include suggestions that providers should be forced to hold all Canadian clients’ assets “with an appropriate custodian and segregate these assets from the platform’s proprietary business.”
“Crypto trading platforms that are registered or that have entered into a pre-registration undertaking are reminded that they are prohibited from permitting Canadian clients to trade, or obtain exposure to, any crypto asset that is itself a security and/or a derivative,” the statement said. “Crypto trading platforms are expected to have established policies and procedures to determine whether each crypto asset they provide exposure to is a security and/or derivative.”
To continue operating while their application is being processed, cryptocurrency platforms must give their primary regulator a pre-registration undertaking. By making these commitments, the crypto exchange acknowledges that its platform is bound by terms and conditions that address investor protection issues.
If a cryptocurrency trading platform is unable to file an undertaking or does not adhere to its requirements, CSA members may seek legal action.
“These risks could result from, among other things, crypto trading platform non-compliance with registration terms and conditions or undertakings, interconnectedness within the crypto sector, insolvency, hacks, price volatility and uncertain value propositions for individual assets,” the release said.
The CSA statement went on to warn that it reached out to other crypto-asset trading platforms to initiate the registration process, or face enforcement action, including temporary orders.
The new registration rules come amid a nation-wide crackdown on unregulated exchanges. Binance, the world’s largest cryptocurrency exchange, informed a Canadian provincial regulator in March that it would no longer be accepting new customers. The industry’s giant seemingly opted to pull out of Canada, rather than comply with securities law or face regulatory scrutiny.
The move follows the Ontario Securities Commission’s onslaught on Binance back in December 2021 for their alleged failure to comply with securities law. At the time, OSC said Binance has broken its word to regulators after it had previously told its staff that no new transactions involving Ontario residents would occur.