Aux Caves fintech latest target as Canadian Security Commission continues to crack down on crypto asset firms

Securities commissions across the country continue to grapple with a wave of crypto asset firms failing to comply with Canadian securities law.

From British Columbia to Quebec, the commissions have identified a number of businesses that do not have the right to do business in Canada.

In August alone, the Ontario Securities Commission (OSC) flagged off four separate companies: Ox Caves Fintech Company from Seychelles. Ltd.; Polo Digital Assets, Ltd. (Poloniex) operating in Seychelles; Bybit Fintech Limited (Bybit) from the British Virgin Islands; and Make Global Limited, incorporated in the Republic of Seychelles, and Phoenixfin Pte. Ltd., incorporated in Singapore (collectively, KuCoin).

OSC issued a warning to crypto asset trading platforms on March 29 that they should contact OSC staff or face potential regulatory action. Platforms were given until April 19, 2021 to discuss how to bring your actions as a dealer or marketer into compliance.

Additionally, OSC stated that the Platforms that allow access to Ontario are treated by OSC as operating in Ontario for the purposes of securities regulation.

To date, more than 70 platforms have initiated compliance discussions with the Canadian securities regulator. About a quarter of these platforms are located outside Canada.

Employees are working with the firms initiating compliance discussions with the OSC to assess the appropriate route to registration and learn more.

To date, there is only one crypto asset dealer registered with Canada's securities regulators, Toronto-based Wealthsimple (update: there are now two).

Wealthsimple announced plans to expand into crypto trading in July 2020. The company received conditional approval from the Canadian Securities Administrators (CSA) through its sandbox program to test the platform for a period of two years.

Wealthsimple Crypto is now controlled by 13 provinces and the federal government.

The OSC said it will continue to take action against non-compliant crypto asset trading platforms and is in contact with international securities regulators to exchange information to support enforcement action.

Last March, the Canadian Securities Administrators – the governing body for the Securities Commission – outlined disclosure requirements for crypto asset companies.

“The crypto asset industry is relatively new and presents particularly unique accounting issues and auditing challenges,” said Louis Morissette, CSA President and President and CEO of Autorité des Marches Financiers, at the time of the release.

The notice outlines the disclosure requirements of CSA employees in key areas such as protection of crypto assets, use of crypto asset trading platforms, risk factors, content changes and promotional activities.

OSC is not the only Canadian commission working to corral international crypto asset companies. Quebec's Autorité des Marches Financiers (AMF) issued a warning on one company in August, while the British Columbia Securities Commission (BCSC) flagged three.

One company, Cryptologger, drew caution from both Quebec and BC. commission, as well as from the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association.

Among other things, Cryptologger falsely claimed to be an AMF-regulated investment and crypto-asset management company, while B.C. It claims to have offices in Vancouver and presents itself as "a crypto-asset management company that provides high-growth investment opportunities in cryptocurrency."

Cryptologger's website is no longer working and has been replaced with a message that says that the account has been suspended.

“Unregistered crypto-asset trading platforms expose Ontario investors to significant risks, including potential loss, theft and misuse of their assets,” OSC President and CEO Grant Wingo said earlier this year. "The recent explosion of unregistered platforms has increased these risks."

One of the high-profile cases that followed executives from a Canadian crypto asset company occurred in 2020, when the OSC accused Toronto-based crypto trading platform Coinsquare of manipulating the market and misleading its customers.

Since then, Coinsquare has changed its lead and streamlined its business plan and technology, launching its crypto platform Quick Trade in February. In March, Coinsquare entered into an agreement with the Canada Revenue Agency to hand over information related to its clients' account history and trading data in an unrelated matter.