The Canadian Securities Administrators (CSA) published proposed regulatory amendments for reporting issuer investment funds that seek to invest directly or indirectly in crypto assets (Public Crypto Asset Funds), intended to provide greater regulatory clarity with respect to certain key operational matters regarding these investments, such as:
- Criteria regarding the types of crypto assets that Public Crypto Asset Funds are permitted to purchase, use or hold;
- Restrictions on investing in crypto assets by Public Crypto Asset Funds or other types of reporting issuer investment funds; and
- Requirements concerning custody of crypto assets held on behalf of a Public Crypto Asset Fund.
This will codify practices of existing Public Crypto Asset Funds, developed mainly through the prospectus review process, as well as codifying exemptive relief previously granted to existing Public Crypto Asset Funds. CSA noted that this can also facilitate new product development in the space while also ensuring that appropriate risk mitigation measures are built directly into the investment fund regulatory framework.
Securities financing will be ruled out in the proposal: “We are proposing to prohibit the use of crypto assets in securities lending, repurchase transactions or reverse transactions, as the loaned securities, transferred securities or collateral posted in connection with these transactions, as applicable. While we believe that the market characteristics of most crypto assets make them impractical for these types of transactions in an investment fund, we think it is important to remove any regulatory ambiguity.”
One of the amendments noted that: “Neither the loaned securities nor the collateral delivered to the investment fund includes a crypto asset.”