The Canadian Web3 Council and Canadian businesses are deeply concerned by the CSA’s recent regulatory action treating fiat-backed stablecoins as securities and/or derivatives under Canadian securities laws. If continued, the CSA’s current approach will only prevent stablecoins from being available within Canada, limiting the access of Canadian businesses and consumers to a fast, low-cost form of cross-border payments and preventing innovative businesses from being built.
We recently outlined our concerns in a letter to the CSA, read the full letter here.
Stablecoins are designed and used for payments
Fiat-backed stablecoins are used for payments, not investment or speculation. Canadian businesses use stablecoins to receive payments from customers, pay suppliers and contractors, process payments for online merchants, provide remittance services, and exchange them with other Canadian businesses and consumers that use them for similar purposes.
Unlike some other crypto assets, which may be acquired for investment purposes, fiat-backed stablecoins are intended to maintain a stable value, and they are used primarily for payments purposes. Canadian securities laws do not and should not apply to payments activities.
Businesses and individuals across Canada have adopted, and rely upon, fiat-backed stablecoins for a wide range of payments activities, such as:
- Paying suppliers, contractors and other service providers
- Receiving payments from customers
- Paying for goods and services
- Remitting money to other countries
- Mitigating risks in the current payments ecosystem
According to a 2023 paper by researchers at Georgetown University, the use of stablecoins for speculative trading has dropped by 90 percent in the last five years. Payment stablecoins have surfaced as a means of exchange and value preservation, exhibiting fewer speculative and leveraged actions compared to fiat M2 money. The trading volume of payment stablecoins is 10% of that of trading stablecoins and 60% of that of fiat M2 dollars.
Additionally, the Ontario Securities Commission’s updated Crypto Asset Survey from 2023 confirms that the use of stablecoins by Canadians for payment purposes is growing. According to the survey, of respondents who have owned crypto assets, 22% (2022 – 21%) have used stablecoins to convert to cash, 18% (2022 – 15%) have used them to pay for goods and services, 14% (2022 – 11%) have used them to make an international payment or transfer, and 11% (2022 – 10%) have used them for other financial products. Overall, of those surveyed and who owned crypto assets, fewer individuals reported that they do not own stablecoins than in the previous year 15% in 2023 (24% in 2022).
Canadian political leaders have recognized that stablecoins are distinct from crypto assets that serve investment purposes. In its recent report Blockchain Technology: Cryptocurrencies and Beyond, the House of Commons Standing Committee on Industry and Technology wrote: “The regulation of stablecoins was put forward by witnesses as one area where the federal government could play a larger regulatory role and distinguish these products from other, more speculative, forms of cryptocurrencies. The Committee agrees that these products have different use cases than other cryptocurrencies and raise unique regulatory concerns.”
The Committee recommended “[t]hat the Government of Canada adopt a distinct regulatory approach to stablecoins that reflects the difference between these products and other cryptocurrencies, and account for the unique regulatory challenges they present.”
Other jurisdictions taking a different approach
By trying to regulate fiat-backed stablecoins as securities or derivatives, the CSA is sending Canada down a regulatory path inconsistent with other leading jurisdictions, which are regulating fiat-backed stablecoins under payments, banking or bespoke new laws:
- The European Union’s Markets in Crypto Assets (MiCA) includes new regulatory frameworks for e-money tokens and asset-referenced tokens.
- The Monetary Authority of Singapore (MAS) has recently announced its new stablecoin regulatory framework, which treats fiat-backed stablecoins as “digital payment tokens”.
- The New York Department of Financial Services (NYDFS) has issued guidance regarding the issuance of fiat-backed stablecoins issued by licensees under NYDFS supervision.
- The House Financial Services Committee of the U.S. Congress is currently considering draft legislation, the Clarity for Payment Stablecoins Act, that would regulate stablecoins as payment instruments. The draft bill contains explicit language that would clarify that stablecoins are not securities.
- The Bank of England and the Financial Conduct Authority have recently circulated discussion papers as part of a consultation on regulation of fiat-backed stablecoins that are used as a form of payment.
- The Hong Kong Financial Services and the Treasury Bureau and the Hong Kong Monetary Authority have issued a consultation paper on a proposed regulatory regime that would bring issuers of fiat-backed stablecoins under the supervision of the Monetary Authority.
The CSA’s approach is creating costs, red tape and uncertainty for Canadian businesses
If continued, the CSA’s current approach will only prevent stablecoins from being available within Canada, limiting the access of Canadian businesses and consumers to a fast, low-cost form of cross-border payments and preventing innovative businesses from being built.
As a result of the CSA’s guidance, any Canadian business that buys, sells or otherwise uses fiat-backed stablecoins must now consider the risk that Canadian securities regulators will suggest they are violating Canadian securities laws simply by using stablecoins in their businesses. They must also consider whether they need to divert time, effort and capital to registering under Canadian securities laws.
Even if the use of fiat-backed stablecoins is incidental to a business, that business has to consider whether there are other compliance or other risks of using stablecoins. The most likely outcome is that many Canadian businesses will simply elect not to deal in stablecoins because if they do so, they could be accused of dealing in securities or derivatives in breach of securities laws.
We strongly appeal to the Canadian Securities Administrators (CSA) to consider several critical actions:
- Firstly, we recommend either rescinding or postponing the April 30, 2024 deadline set for fiat-backed stablecoins to comply with CSA’s regulations.
- Additionally, we propose adjustments to the existing CSA requirements concerning crypto asset trading platforms (CTPs) that deal with fiat-backed stablecoins.
- It’s also crucial to clarify that CSA members have not classified fiat-backed stablecoins as securities or derivatives.
- Lastly, we suggest the CSA collaborate with federal financial regulators to launch a public consultation involving relevant stakeholders on the governance of fiat-backed stablecoin issuers.
The effect of the recent regulatory action by the CSA will further deprive Canadians of greater competition and innovation in payments. Canadians already suffer from a lack of competition in payments, particularly cross-border payments. Unlike most other developed countries, Canada still does not have a real-time payments rail, resulting in increased costs and slower payments for both individuals and businesses. Many Canadians, particularly new Canadians, rely upon expensive services to transfer money to other countries. The CSA’s actions will only make it more complex, costly and difficult for Canadians to build and use innovative payments solutions.
A rushed regulatory approach, undertaken with short deadlines, no public consultation and unclear jurisdiction, will only inflict more costs, red tape and uncertainty on Canadian citizens and businesses.
1 Beyond Speculation: Payment Stablecoins for Real-time Gross Settlements. Gordon Y. Liao, Thomas F. Hadeed, Ziming Zeng, September 1, 2023. Link: https://georgetown.app.box.com/s/rjqd4n1jb1bzqllx97fovsf4io3f48ej
2 Crypto Asset Survey 2023”, Ontario Securities Commission, November 29, 2023, online: <https://www.osc.ca/sites/default/files/2023-12/inv-research_20231129_crypto-asset-survey-2023.pdf>. The original survey is “Crypto Asset Survey”, Ontario Securities Commission, September 26, 2022, <online:
3 Blockchain Technology: Cryptocurrencies and Beyond – Report of the Standing Committee on Industry and Technology”, June 2023, 44th Parliament of Canada, 1st Session. See Recommendation #7, page 42 online: < https://www.ourcommons.ca/Content/Committee/441/INDU/Reports/RP12522346/indurp15/indurp15-e.pdf>
5 “Response to Public Consultation on Proposed Regulatory Approach for Stablecoin-related Activities dated 15 August 2023”, Monetary Authority of Singapore, <https://www.mas.gov.sg/-/media/mas-media-library/publications/consultations/pd/2023/response-to-consultation-on-stablecoins-regulation_15aug2023.pdf>
6 “Guidance on the Issuance of U.S. Dollar-Backed Stablecoins”, New York Department of Financial Services, June 8, 2022, online: <https://www.dfs.ny.gov/industry_guidance/industry_letters/il20220608_issuance_stablecoins>
7 H.R. 4766, Clarity for Payment Stablecoins Act, July 20, 2023, online: <https://www.congress.gov/118/bills/hr4766/BILLS-118hr4766ih.pdf>
8 See “Regulatory regime for systemic payment systems using stablecoins and related service providers”, Bank of England, November 6, 2023, online: <https://www.bankofengland.co.uk/paper/2023/dp/regulatory-regime-for-systemic-payment-systems-using-stablecoins-and-related-service-providers> and “DP23/4 Regulating cryptoassets Phase 1: Stablecoins”, Financial Conduct Authority, November 2023, online: <https://www.fca.org.uk/publications/discussion-papers/dp23-4-regulating-cryptoassets-phase-1-stablecoins>
9 “Legislative Proposal to Implement the Regulatory Regime for Stablecoin Issuers in Hong Kong”, Financial Services and the Treasury Bureau and Hong Kong Monetary Authority, December 2023, online: <https://www.hkma.gov.hk/media/eng/doc/key-information/press-release/2023/20231227e4a1.pdf>