The Canadian Securities Administrators published guidance to help crypto asset trading entities to determine situations where securities legislation may or may not apply. The relevant determination will depend on the facts and circumstances, including the obligations and intention to provide immediate delivery of the crypto asset.
For example, securities legislation may apply to platforms that facilitate the buying and selling of crypto assets that are commodities, because the user’s contractual right to the crypto asset may itself constitute a derivative, a security or both.
In some circumstances, platforms are under no obligation to immediately deliver crypto assets. Potentially, there will be ongoing reliance and dependence of users on a platform until the transfer to a user-controlled wallet is made, meaning users would be subject to ongoing exposure to insolvency risk (credit risk), fraud risk, performance risk and proficiency risk on the part of platform.
The notice provides guidance on what constitutes immediate delivery, together with a detailed example of a situation where securities legislation does not apply.