CSA and OSFI Announce Guidance Concerning Crypto Asset Holdings

The Canadian Securities Administrators (CSA) and the Office of the Superintendent of Financial Institutions (OSFI) have recently announced guidance concerning the holding of crypto assets.

A public consultation period in respect of OSFI’s guidance, which relates to the regulatory capital treatment of crypto-asset exposures, is open until September 20, 2023.

CSA Staff Guidance on Crypto Asset Investment Funds

On July 6, 2023, the CSA published guidance concerning the operation of investment funds that seek to invest in crypto assets, either directly or indirectly under National Instrument 81-102 Investment Funds (NI 81-102) (“Public Crypto Asset Funds”). A copy of CSA Staff Notice 81-336 Guidance on Crypto Asset Investment Funds that are Reporting Issuers (the “Notice”) may be found at this link.

The Notice reports that as of April 30, 2023, there are 22 Public Crypto Asset Funds in Canada that collectively have approximately $2.86 billion in net assets. The Public Crypto Asset Funds currently invest only in bitcoin and/or ether. In addition to providing an overview of the regulatory framework, which is the same as for other publicly distributed investment funds in Canada, the Notice summarizes the results of reviews of Public Crypto Asset Funds recently conducted by CSA staff that focused on liquidity, ETF structure, and custody.

Most importantly, the Notice sets out CSA staff guidance on the unique challenges for funds holding crypto assets directly, including:

• characteristics of crypto asset and crypto asset markets that CSA staff look for and assess;
• custody requirements;
• issues facing Public Crypto Asset Funds that participate in staking activity; and
• expectations for Know-Your-Product, Know-Your-Client and Suitability compliance.

The guidance in these areas is evolving and CSA staff note that one or more of the areas identified in the Notice may also become the subject of future policy work by the CSA.

OSFI Consultation on Draft Guidelines for its Capital and Liquidity Approach to Crypto Assets

On July 26, 2023, OSFI announced two draft guidelines (the “Guidelines”) that are open for public consultation until September 20, 2023, one for federally regulated deposit-taking institutions and another for insurers, on the regulatory capital treatment of crypto-asset exposures.

The Guidelines represent OSFI’s response to the release of new banking standards for crypto-asset exposures by the Basel Committee on Banking Supervision in December 2022. When they come into effect in early 2025, the Guidelines will replace the interim advisory on the regulatory treatment of crypto-asset exposures, published in August 2022. OSFI’s announcement, which contains links to the Guidelines and details for sending comments may be found here.

For further information concerning this recently-issued guidance, please contact any member of our Financial Services Regulatory Group.