Recently, enough crypto exchanges have run into problems to make governments look at it with suspicion. Governments are increasingly taking measures to prevent even more trading platforms from collapsing. Stricter rules are also being made in Canada.
Exchanges must segregate customers’ money
As in other countries, the regulatory authorities in Canada try to protect investors. Last summer announced the Canadian Securities Administrators (CSA) has indicated that crypto trading platforms are required to register so that it knows which platforms exist at all. Only in this way can it efficiently keep an eye on things.
Now that so many companies have collapsed, it has become clear that registration is not enough. In a new statement declares the policymaker that crypto companies must place clients’ assets with an ‘appropriate’, qualified custodian. This category includes custodians regulated in Canada, the United States, or any other similar jurisdiction.
So this would separate customer assets from the exchange’s assets. This ensures that the trading platform cannot use clients’ coins as leverage. Many investors do not take their properties from the exchange, so they can be used to ‘sell again’ to someone else.
Because there is usually a balance between inflows and outflows this often works well, but not always. We saw this with the bankruptcy of FTX and Celsius. Funny thing is that there are companies that have been separating their assets for a long time, such as the Dutch company Bitvavo.
Bitcoin leverage now banned for Canadians
Perhaps more importantly, crypto companies operating in Canada will no longer be allowed to offer leverage to Canadian customers. Leverage trading means that the investor invests with debt, but also that the position can be closed if it becomes worth too little.
The exchange can make a lot of money with this, because if trades go wrong it can claim the underlying. But if customers are right, the exchange loses money. The CSA considers it too risky for both companies.
Eeffects are also prohibited
The latest change is that crypto exchanges are no longer allowed to offer tokens in Canada that resemble securities. That can sometimes even be stablecoins, according to the government body. Ripple is currently in a lawsuit with the US Securities and Exchange Commission (SEC), which believes that the token XRP is a security. Coinbase was also in the crosshairs last summer because several tokens fall under this category.