On behalf of the Canadian Web3 Council (CW3) we’d like to thank the Standing Committee on Industry and Technology for the various opportunities that members of CW3 have had to appear before the committee during its important study of blockchain technology in Canada.
The CW3 is a non-profit trade association founded by industry leaders to work constructively with policymakers and establish Canada as a leader in Web3 technology. The CW3 represents organizations that have made a critical impact on the development of Web3 technologies across the globe, and who are committed to responsibly building and innovating in Canada. Our membership is diverse, ranging from financial products and trading platforms to investors, and open-source blockchain projects.
Foundation of a regulatory framework
Canada is one of the world’s leading jurisdictions with respect to how it oversees domestic cryptocurrency trading platforms. With strict regulatory requirements from Canada’s securities regulators, in recent years we’ve seen significant progress on oversight. This oversight has helped to foster confidence in Canadian cryptocurrency trading platforms by putting in place the investor protections that appropriate regulation can provide.
Despite the approach of regulators, there however remains a lack of regulatory certainty and harmonization across jurisdictions. This remains a hindrance to the ongoing growth of the sector. Accordingly, CW3 believes that we have reached an inflexion point in Canada where our blockchain community needs further regulatory certainty to continue to foster the innovation that our community has benefitted from in the past number of years. While Canada remains a global leader for now, we know that other jurisdictions around the world are poised to overtake Canada as a leader in the regulatory space.
During this committee’s study of blockchain we’ve heard mention of Europe with their pending MiCA regulatory framework which is expected to take effect in 2024. We also have heard about Dubai which has been at the forefront of fostering a crypto ecosystem in that country. Other countries like Switzerland, Estonia and the Netherlands have emerged as leaders when it comes to regulating the activities of cryptocurrency trading platforms. We would therefore encourage the committee to include an examination of these countries in its study of blockchain technologies.
Throughout the committee study we’ve also heard from witnesses from across the industry that Canada needs more regulatory certainty and approached coordination amongst securities regulators and the federal government. As such, CW3 is calling on the Government of Canada to build on its ongoing dialogue with industry by establishing a set of principles for a national, regulatory framework where things are ‘treated-like’. By doing so Canada won’t be re-inventing the wheel, but instead would be working within existing regulatory bodies to reduce regulatory arbitrage.
Providing ‘stable’ regulation of Stablecoins
The Canadian Web3 industry requires clarity about how stablecoins will be overseen by regulators. Accordingly, CW3 submits that stablecoins should be regulated by the federal government, considering its jurisdiction over payments and currency. Finance Canada’s ongoing consultation on the digitalization of money seeks to address regulatory oversight of stablecoins and is the most appropriate forum for addressing regulatory gaps related to stablecoins.
As a policy matter, we do not believe that securities laws are the appropriate mechanism for the regulation of all stablecoins, particularly the most prevalent stablecoin being used today: fiat backed, fully reserved private stablecoins. Fundamentally, securities laws are directed at regulating investments, however most stablecoins are not an investment, but are instead best understood as a payment instrument. Furthermore, oversight under securities laws requires coordination among provincial and territorial regulators – different regulators may have different requirements, undermining the ability of stablecoins to be used as a national means of payment.
The Bank of Canada recently praised the advantages of stablecoins over traditional payment methods in a staff discussion paper published in late December 2022. These advantages include greater user controls over privacy, potential of increased payment speeds and the potential for greater innovation in the payments space with the deployment of blockchain. Observations like these from the Bank of Canada build credence for the view that stablecoins should be treated as a payments mechanism by regulators.
Ultimately, CW3 believes that securities law requirements are not an appropriate mechanism for regulating all stablecoins and could undermine the development of Canadian based private stablecoin offerings. This will be crippling for Canada’s Web3 sector, and will have the unintended consequence of making it prohibitively complicated for potential domestic regulated issuers to create a safe Canadian stablecoin, pushing Canadians to access stablecoins from unregulated offshore platforms and undermining consumer protection as recent events have demonstrated.
Blockchain for Canada
There is a lot of pride in the work and research that the Canadian blockchain industry does every day – but we take pride in particular when our work is geared towards the social good of the communities and places that we call home.
We note that committee members have taken an interest in the numerous ways that blockchain has been employed in various manners and across industries. Around the world we’ve seen blockchain being utilized to help track the supply chain of foreign aid and in doing so helping to combat the corruption that has often plagued humanitarian assistance in developing countries. We’ve also seen uses of blockchain to help ensure there is no child or forced labour involved in the provenance of goods. Moreover, blockchain can be a tool for good in helping create digital identity for those that have been displaced around the world, unlocking benefits such as a bank account, pathways to citizenship and healthcare.
Closer to home, we’ve seen a number of real-world applications like the University of British Columbia creating a ‘personal health wallet’ where health information is securely stored on a person’s smartphone using blockchain. We’re also pleased to have seen the Government of Canada fund blockchain experiments through Public Services and Procurement Canada’s Build in Canada Innovation Program and National Resource Council’s IRAP funding programs. We’d also like to highlight Statistics Canada’s recent experiment with blockchain with respect to data.
Given this work, we recommend that the Government of Canada build on previous government blockchain experiments and explore more opportunities to employ blockchain in the operations of the federal government and with how efficiently it can continue to deliver services to Canadians. Moreover, Canadian blockchain R&D companies would welcome further and enhanced funding opportunities to demonstrate blockchain use cases in even more industries and applications.
The Government of Canada through the Canadian Anti-Fraud Centre and Financial Consumer Agency of Canada (FCAC) can play an important role in helping to educate Canadians about cryptocurrencies and the risks of dealing with unregistered platforms that may operate outside of Canada.
Like other financial instruments, Canadians should know that Canada has some of the strictest regulatory requirements for cryptocurrency trading platforms in the world. However, we know that Canadians continue to invest their hard-earned money into cryptocurrency trading platforms that are hosted abroad where there is more risk of the sort of fraudulent high-profile activities that have dominated headlines in the latter part of this year.
We call on the Canadian Anti-Fraud Centre and FCAC to expand their efforts and information campaigns to include education on the risks associated with investing in foreign crypto trading platforms. These government entities have a long track record of helping to protect Canadians and believe they should expand their efforts to include cryptocurrency related education campaigns. The CW3 is ready and willing to assist them in this important effort.
In sum, CW3 puts forward the following recommendations for the Government of Canada to consider in its approach to blockchain technology and cryptoassets:
- Examine the regulatory activities of jurisdictions from around the world so that Canada can continue to learn from and be a global leader in the blockchain technology space.
- Work with the blockchain industry to establish a set of principles for a regulatory framework.
- Asset-backed stablecoins should be under the purview of federal oversight and regulation.
- The Government of Canada should expand on previous blockchain experiments to find more use-cases within the operations of the government.
- The Government of Canada should expand and enhance funding opportunities for Canadian blockchain R&D companies to help reach commercial stage use-cases and applications for their blockchain technologies.
- Create an ongoing education campaign through FCAC and the Canadian Anti-Fraud Centre to help protect Canadian consumers on the risks associated with investing in non-regulated foreign crypto trading platforms.
The CW3 is pleased that the committee has undertaken this study of blockchain technology, and we see this opportunity to contribute to this important study in which we view as the beginning of a foundation that contributes to helping to protect, enrich and the development of an emerging industry in our country.