Canada’s investment industry organization prepares to regulate blockchain applications, digital assets

Maria Nikolova

IIROC has established a working group that will recommend a potential regulatory response.

The Investment Industry Regulatory Organization of Canada (IIROC) is the latest body to look more closely into blockchain and its applications. In a Notice summarizing the significant activities and initiatives that IIROC will focus on in its 2019 fiscal year: April 2018 – March 2019, IIROC says that as the pace of industry change continues to accelerate, and the rise of financial technology (FinTech), blockchain, digital assets, etc. has transformational implications for markets, investors, dealers and overall industry infrastructure, the organization is preparing itself to regulate blockchain applications and digital assets.

The potential application of blockchain technology is set to dramatically change the very ecosystem that underpins the capital markets, IIROC says. Digital assets such as cryptocurrencies are examples of blockchain applications that have already had an impact on the capital markets in significant ways, as potential direct or indirect investments, or in the form of initial coin offerings, cryptocurrency exchanges, etc.

To help IIROC keep pace with this fast-growing area, the body has formed a working group that will recommend a potential regulatory response. The impact of this phenomenon cuts across all boundaries, so the working group will liaise closely with other Canadian regulators and stakeholders, to ensure they are aligned and consistent, IIROC explains.

The plans by IIROC are unveiled less than a fortnight after the Bank of Canada announced that it will partner with the Creative Destruction Lab (CDL) to deepen its knowledge of leading technologies. In particular, the Bank’s partnership agreement with CDL focuses on the fields of artificial intelligence (AI), machine learning, crypto-asset technologies and quantum computing. The Bank of Canada will be an AI Stream partner and participate in both the CDL-Toronto and CDL-Montreal programs for a three-year period. The collaboration is set to allow Bank staff to better understand these technologies and their applications.

In the meantime, other regulators have been more skeptical about the potential of blockchain. Early in June, for instance, the Netherlands central bank (DNB) has found that blockchain is not capable to respond to the needs of financial markets infrastructure (FMI).

The Dutch regulator has reported the results of its tests involving blockchain, with the biggest shortcomings of this technology being inadequate capacity, inefficiency due to high energy consumption and lack of complete certainty about having made a payment. Nonetheless, it appears that the resilience of a financial market infrastructure against external attacks could be increased by the use of blockchain technology, the bank said, but this happens at the expense of capacity and efficiency.

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