Canada’s securities watchdog has relaxed its stringent regulations against stablecoins and will now permit exchanges to offer fully-backed and transparent stablecoins.
The Canadian Securities Administrators (CSA) recently announced that it may allow the trading of some stablecoins, or “value-referenced crypto assets that are referenced to the value of a single fiat currency.”
CSA first restricted the trading of stablecoins in February. At the time, the umbrella body for Canada’s provincial securities regulators claimed that stablecoins may be categorized as securities or derivatives. Exchanges could only offer stablecoins with the express and prior written consent of the CSA.
The regulators have reconsidered the measure, partly due to the feedback they received from stakeholders in the country’s budding digital asset industry. They acknowledged that “value-referenced crypto assets may have certain uses for the Canadian clients of crypto asset trading platforms.”
The first of CSA’s two conditions for stablecoins is that the issuer must maintain an appropriate reserve of assets with a qualified custodian.
This condition has proven the most contentious between issuers and regulators. Some, like Tether, have skirted around this requirement by citing incomplete and sometimes non-existent proof-of-reserves audits. At one point in 2017, only $61 million was held in reserves, even as $442 million worth of USDT circulated, equating to less than 14% backing for the world’s largest stablecoin. Despite the public misrepresentations, and sometimes even public admissions of guilt from some like Binance, the issuers get away with paltry fines and a stern “don’t do it again.”
In addition to fully backing their stablecoins, Canada requires issuers to publicly disclose certain information relating to operations, governance, and reserve of assets.
But even when the issuers meet all these conditions, CSA warns Canadian investors that stablecoins are still risky.
“The transparency of value-referenced crypto assets about the composition and adequacy of their reserves and their governance are critical issues that must be addressed to protect Canadian investors and the integrity of our capital markets,” CSA chair Stan Magidson commented.
Magidson, who also heads the Alberta Securities Commission, added that the CSA and other regional watchdogs expect to build on the stablecoin framework in the future.
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