After FTX crash: Canada with crypto regulation

Financial regulators in Hong Kong and Canada warned investors about the risks associated with crypto providers this week and are now planning to expand their crypto regulations.

The Hong Kong Securities and Futures Commission (SFC) warned investors the dangers of centralized crypto service providers (such as FTX) offering investments, staking and other for-profit services.

Meanwhile, the Canadian Securities and Exchange Commission (CSA) wasted no time and already expanded their crypto rules.

Hong Kong sees risks for investors in unregulated crypto platforms

In light of FTX’s collapse, the SFC warned investors of a significant or even complete loss of their funds. In particular, it was about fraud or the demise of crypto platforms.

The authorities particularly targeted platforms that guarantee fixed or high interest rates on deposits. As the regulator explained, Crypto deposits are unregulated and therefore differ from protected bank deposits. The SFC emphasized:

“Digital assets face increased risks, including insufficient liquidity, high price volatility, opaque pricing, potential market manipulation, hacking and fraud. Therefore, they can lose all their value.”

It goes on to say that the SFC did not review the offer and marketing materials, leaving investors without protection. According to Finance Minister Paul Chan Mo-Po, crypto is unstoppable. According to this, the country could possibly tighten the rules without stifling growth in the sector.

Canada tightens rules for crypto and custodial services

The Canadian Securities and Exchange Commission (CSA) also announced a tightening of cryptocurrency oversight rules. The demise of FTX further prompted them to expand the standards applicable to domestic platforms. This also applies to foreign platforms available to Canadians.

This includes, among other things, that Canadian clients’ assets must be held with the correct custodian bank and remain separate from the platform’s main business.. Additionally, Canadian customers should not be assigned leveraged trading.

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Under the CSA, custodians that are subject to supervision by a financial regulator in Canada, the United States or an equivalent country are deemed to qualify.

Interestingly, the CSA sees no reason to classify stablecoins or stablecoin agreements as securities and/or derivatives. As a result, the authority recalled crypto trading platforms that it is against the law to allow Canadian customers to interact with such assets.

According to its own statements, the CSA will publish further information about its rule extensions.

FTX collapse forces new rules

The FTX collapse highlighted how much platforms rely on their own tokens. According to some allegations, former CEO Sam Bankman-Fried actually broke the law by funneling client funds to his companies.

Therefore, rules to separate primary business and client funds are now a top priority. Other countries could soon follow the example of Canada and Hong Kong and expand their surveillance of the platforms.

The latest decisions from Hong Kong and Canada are primarily aimed at closing some of the loopholes that FTX has exploited.

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