Canada’s principal regulatory body for the investment industry unveiled new rules focused on improving cryptocurrency security. Announced this Tuesday, these guidelines aim to avert future losses similar to those engendered by hacking incidents, fraudulent behaviors, and managerial oversights seen in the past. Developed by the Canadian Investment Regulation Organization (CIRO), the fresh regulations mandate explicit requirements for cryptocurrency trading platforms within the nation. These rules are currently being enacted under provisional membership terms and will pave the way for permanent legislative measures.
What Does the New Custody Framework Entail?
CIRO’s Digital Asset Custody Framework introduces a holistic regulatory design aimed at crypto asset protection. It provides precise standards directing member institutions on digital asset management processes. These requirements encompass several facets, including technological, legal, and operational criteria.
This framework is built around a four-tier, risk-based model, categorizing custody service providers according to factors such as capital levels, insurance provisions, regulatory oversight, and operational resilience. The highest-tier custodians are permitted to hold up to 100% of customer assets, whereas the lowest tier is limited to 40%.
What Lessons Have Past Crises Taught?
The impetus for introducing these regulations roots in the significant financial setbacks Canada has faced. The 2019 crash of the QuadrigaCX exchange, which led to thousands of investors losing their savings, stands as a crucial learning point for CIRO’s new scheme. The organization cites these past challenges as forming the backbone of the newly designed regulation.
The framework stipulates robust management policies covering key security aspects such as cybersecurity, incident responses, and third-party risk evaluations. Enhanced insurance requirements, regular independent audits, stringent security compliance checks, and frequent penetration testing reinforce the regulatory measures.
Further, the clear allocation of liability in case of negligence or error is mandated in custody documents, reinforcing investors’ legal protections. Officials confirm that the structuring strives to balance market competitiveness with investor safeguards.
Numerous regulatory pressures have increased on Canada’s crypto scene lately. Notably, FINTRAC imposed a fine of around $126 million on Cryptomus last October for reporting failures associated with unlawful financial actions. Additionally, platforms like KuCoin and Binance encountered similar penalties within the same timeframe. CIRO retains the power to investigate member companies, administer fines, and halt operations if necessary.
Key takeaways from the regulations include:
- An advanced four-tier system classifying custody service providers by risk and capacity, with varying limits on customer asset protection.
- Stringent management protocols covering cybersecurity and incident responses.
- Mandatory liabilities outlined in custody agreements to protect investors against preventable losses.
- CIRO’s ongoing authority over regulatory enforcement, including the imposition of fines and suspension of non-compliant activities.
The fresh regulatory endeavor by CIRO promises an enhanced safety framework for crypto assets held in Canada. By addressing past mishaps and instituting a rigorous oversight system, authorities aim to bolster investor confidence and maintain a competitive, secure market landscape.
“These newly enforced standards signify a balanced approach to fostering market competition while ensuring investor safety,” the organization highlighted.
