On March 24, 20233, CW3 submitted a letter to the Canadian Securities Administrators (CSA) in response to CSA Staff Notice 21-332, which outlines that the CSA has a view that stablecoins may be securities or derivatives. According to the guidance, platforms must get written consent from the CSA to offer stablecoins to clients.
We are concerned that the guidance in the Staff Notice is:
- based on an uncertain legal position
- advances a policy approach that is not fit for purpose
- potentially in conflict with approaches in other jurisdictions
- suggests an inefficient and unclear approval process
We believe this approach will adversely affect Canadian businesses, competition and innovation in crypto assets while not meaningfully advancing investor protection objectives.
We share the concern of the CSA that some stablecoins may create undue risks for Canadians and that Canadians may not be fully aware of the risks of certain stablecoins. However, registered Canadian CTPs have always been required to conduct due diligence on crypto assets, including stablecoins, prior to listing and continuously monitor them for material changes and risks.
We propose that instead of asserting that stablecoins are securities or derivatives, the CSA and its members should work with Crypto Trading Platforms (CTPs) and other stakeholders to find ways of enhancing the existing product due diligence and disclosure requirements under the existing CTP regulatory framework to address risks raised by stablecoins.
Stablecoins are one of the most widely adopted and fastest-growing applications of public blockchains. Stablecoins provide a store of value that is less volatile than other crypto assets, but perhaps more importantly, stablecoins are fundamentally a new payments technology that offers numerous benefits to existing payment systems. These benefits include worldwide accessibility through open blockchain networks, faster and more transparent transactions, lower fees, continuous operation without time restrictions, and irreversible payments that guarantee security for beneficiaries. Additionally, stablecoins utilize widely-accepted crypto asset standards, promoting competition and interoperability, while permanently recording transactions on public blockchains for enhanced traceability. Furthermore, their integration with smart contracts enables complex financial applications, such as automated escrow services and conditional payment releases.
Given the importance of stablecoins, and the ongoing consultative efforts underway by the federal government, we are particularly disappointed that CSA staff chose to publish their views on stablecoins in the Staff Notice without first consulting with industry and other stakeholders.
We are also gravely concerned that in publishing the Staff Notice, the CSA has not adequately taken into account the adverse impact the guidance will have on individuals and businesses other than CTPs, as well as the impact the guidance will have on innovation in Canada involving stablecoins. By suggesting that all stablecoins may be securities or derivatives, the guidance creates uncertainty that non-CTP businesses that transact in stablecoins for business purposes may be dealing in securities or derivatives contrary to Canadian securities laws.
We once again urge the CSA to undertake industry consultations with interested parties to ensure that public policy is undertaken in a coordinated and transparent manner that is fit for purpose. As an industry, we are working collectively to address these issues. Now is the appropriate time to end bilateral negotiations on important policy issues and instead engage in industry consultation.
