What will it take to stop the next QuadrigaCX crypto exchange scandal? In Canada, it will require parliament to act and update its regulations, according to a group of lawyers recently interviewed by Canadian Lawyer magazine.
Unfortunately for Canadian cryptocurrency investors, the laws of the land just don’t know how to interpret cryptocurrencies, and as a result, don’t apply to exchanges. Mike Stephens, a partner at Fasken Martineau DuMoulin LLP in Vancouver, said, “There really isn’t anything in our laws that would regulate a company like QuadrigaCX.”
Even if QuadrigaCX was caught doing something wrong before the house of cards fell apart, Stephens says Canadian laws are powerless to enforce any action on them. They fall somewhere between securities laws and money transmittance laws, but neither actually apply.
“I think Quadriga CX is going to be the case that turns things in Canada and kick-starts regulation because this problem could very well happen again,” said Chetan Phull, founder of Smartblock Law PC, a cyber-tech law firm in Toronto, Ontario. He suspects this will force Canada to look at exchanges like banks.
Up until very recently, everyone’s best guess was QuadrigaCX was unable to access their customers’ funds due to the untimely death of Gerrald Cotten, the former CEO of the exchange, who held the private keys to the company’s cold storage cryptocurrency wallets. That caused indignation by onlookers, that a company handling hundreds of millions could have such a poor storage system for their funds.
“I’m hoping this case illustrates the importance of not just data security from the standpoint of breaches but also data security from the standpoint of putting these impenetrable locks on data that can never be accessed again because of irresponsible conduct,” said Phull.
As recent revelations have shown though, the case of QuadrigaCX appears to not at all be about locked away funds, but something more sinister. Those wallets have now been revealed to be empty, and the exchange’s other co-founder, Michael Patryn, has been accused of having a secret identity, a history of identity theft, and suspicious trading activity, potentially with customer funds.
It’s hoped that court monitor Ernst & Young and the Nova Scotia Supreme Court will deliver some justice for the exchange’s creditors eventually, if there’s any money left to give back. Canada will have to consider these legal experts’ opinions to ensure it never happens again.
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