Canada’s Crypto Market Makes Strides in Regulation

Canadian authorities have worked diligently during the last few years putting together their version of crypto market rules and regulations. These new rulings don’t just focus on ICOs, something we’ve seen in other countries. Instead, Canada is covering a wide spectrum of crypto market products and industries. From cryptocurrency mining to the ability to pay taxes with BTC to exchange regulation, this nation is steadily laying the groundwork for blockchain related businesses and their customers.  

Mining

Energy regulator Régie de l’énergie of Quebec recently provided guidance for crypto mining operators in the Province. Hydro-Quebec, one of Canada’s biggest electricity providers, announced the statement in late April 2019. The regulations mandated Hydro-Quebec to allocate 300 megawatts of power specifically to the blockchain industry. Additionally, the guidance also explained that one of the main reasons for these new rules is to preserve the low rates of power for all customers on the grid.

Mining companies will need to satisfy four criteria in order to be eligible for electricity allocation. Three of these criteria are financially related, and the fourth is environmental. Their importance within the eligibility rankings are in percentages:

  • Number of jobs they are creating in Quebec – 30%
  • The payroll totals of those jobs – 30%
  • The company’s direct investments into Quebec – 30%
  • Heat recovery plans that curtail electricity use – 10%

Taxes

The Ontario town of Innisfil began a pilot program for residents who want to pay their property taxes using BTC. Later, they may also be able to pay with other cryptos, including ETH, LTC, BCH and XRP. This represents the first Canadian municipality to delve into the crypto market as related to tax payments.

Crypto Market Rules for Exchanges

Two regulatory agencies jointly issued a statement in March 2019 regarding requirements for crypto exchanges. The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) are now seeking input from the FinTech community regarding how exchange regulations should look moving forward.

The stated goal of the regulators is to create a unique set of regulations specific to crypto exchanges. Since they’ve provided a starting framework, they now are opening up the topic to all those involved.

The 3 major areas of concern

  • Creating a system that evolves along with the speed of innovation.
  • Providing clear securities regulations that are in line with the unique needs of crypto exchanges.
  • Keeping the protection of investors at the forefront.

According to regulators, the plan is to apply securities regulations to cryptocurrencies on exchanges in some but not all cases. Basically, if the exchange is trading in derivatives or securities, they will fall under the CSA governance.

So far we haven’t seen any exchanges that deal only with utility tokens. It would seem that all Canadian exchanges will potentially fall under the CSA’s regulatory structure for securities. Yet the framework clearly supports a joint effort between regulatory agencies and the crypto exchanges in Canada:

We have heard directly from Platform operators and their advisers that a regulatory framework is welcome, as they seek to build consumer confidence and expand their businesses across Canada and globally.

Proposed Framework for Crypto-Asset Trading Platforms

Both agencies also recognize that exchanges have a multi-faceted nature that involves trading, custodial services, and clearing functionalities. So the statement is their way of saying they are considering a unique set of guidelines for these exchanges. They also want to keep in mind the inherent risks that exchanges may pose to themselves as well as to investors.

At the moment, no crypto market exchange in Canada is officially authorized by the government to operate. This is important to note because of one unregulated exchange that has made the news. QuadrigaCX faced the loss of $190 million in investors’ assets recently after the death of their CEO. Apparently, he was the only one holding the private keys to their exchange’s cold storage.

The regulatory statement is open for public comment from all stakeholders until May 15, 2019.

Cross Border Remittances

Canada and Singapore recently held cross border payment trials using blockchain and digital currencies. The two corresponding parties were the Bank of Canada (BoC) and the Monetary Authority of Singapore (MAS). Basically, this is their effort to improve multiple aspects of the current remittance system, namely:

  • Speed
  • Cost
  • Counterparty risks
  • Dependence on corresponding bank networks
  • Inefficiencies in liquidity management
  • Complicated reconciliation

Initially, both the BoC and the MAS were conducting their own separate DLT testing. The BoC’s effort involved Project Jasper, which uses R3’s Codra blockchain platform, and Singapore’s Project Ubin, which is building on JPMorgan’s Quorum Blockchain.

Because of their joint interests, the two countries have come together to address distributed ledger technology solutions. Above all, their goal is to test out an improved system for cross border remittances. They’ll be using hashed time-locked contracts to bring their two networks together. Ultimately, this will allow for 3rd-party-less cross border settlements.

Learn more about FinReg news in our Global Cryptocurrency Regulation Update. Read about the crypto market in our Best Crypto Exchanges article.

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