Blog Post

CSA Offers (Some) Clarification on Cryptocurrency Offerings and ICOs

Raising capital is crucial to business development. That is why cryptocurrency entrepreneurs have reason to be cautious following the recent Canadian Securities Administrators (CSA) notice, which CBC has reported on. The CSA notice explains how securities regulators in Canada perceive cryptocurrencies and outlines which securities laws apply to various cryptocurrency offerings. While some Initial Cryptocurrency Offerings (ICOs) are equivalent to securities offerings, others are more akin to selling currencies. The CSA recognized this distinction and tried to strike a balance.

It is important that the CSA has recognized this distinction because of the stringent reporting obligations which accompany an offering of securities. If all cryptocurrency offerings were securities offerings, the reporting requirements could stifle financial innovation. If no cryptocurrency offerings were securities offerings then investors would not be adequately protected.

The CSA notice does not provide a definitive list of criteria for determining which cryptocurrencies are securities, and which cryptocurrencies are not. The notice also does not provide new offering exceptions to address the unique aspects of cryptocurrencies and cryptocurrency offerings. Rather, the CSA notice encourages interested persons to speak with CSA staff on identifying regulatory issues and concerns relating to cryptocurrency offerings.

The CSA suggests Fintech companies explore the CSA Regulatory Sandbox, which was initiated in February 2017 to encourage innovative Fintech products. Since releasing the regulatory sandbox, the CSA has published more guidance. As this is a new field, we anticipate further guidance and notices from securities regulators that may help Fintech companies understand and comply with their obligations. The U.S. Securities Exchange Commission has also recently issued a press release that further highlights the need for investor protection with respect to certain cryptocurrency offerings.