Key Insights
- Canadian securities regulators proposed limiting most public funds from direct crypto exposure.
- The draft rules would set custodian, insurance and storage standards for those alternative funds with crypto holdings to mitigate risks.
- Regulators said move looks to balance innovation opportunities from crypto assets with appropriate investor protections.
TORONTO – Canadian securities regulators on Thursday proposed limiting most public investment funds from directly investing in cryptocurrencies to curb risks, permitting only alternative funds to hold digital assets like bitcoin.
The new rules drafted by the Canadian Securities Administrators (CSA) would restrict conventional mutual funds from direct crypto exposure, allowing them only indirect access via alternative funds holding virtual assets.
Those alternative vehicles would face standards around custodian insurance and cold storage to mitigate fraud or security threats, the CSA said. Public accountants must also review custodians annually.
The regulator said limiting direct crypto holdings aims “to facilitate new product development in the space while also ensuring that appropriate risk mitigation measures are built” into the rules.
Open for public feedback, the draft regulation comes as global watchdogs warn investors over crypto market risks.
Canadian securities regulators seek feedback on rules for public investment funds holding crypto assets. https://t.co/x82uL6XgTG pic.twitter.com/uKGSlCDD8S
— CSA_News (@CSA_News) January 18, 2024
Canada has grappled with major exchange collapses while also embracing digital asset innovation.
There is certainly an appetite among investors for access to crypto assets through investment funds, said Louis Morisset, CSA chair.
The rules form part of a broader CSA project analyzing crypto regulation and follow last year’s launch of spot bitcoin exchange-traded funds.
While the bitcoin ETF move brought mainstream access, questions persist around investor protection in crypto markets plagued by volatility and speculation.
Thursday’s proposal looks to balance security with continued innovation, said Morisset. The special carve-out for alternative funds recognizes “the innovation opportunities that crypto assets may offer fund managers”.