The Canadian Cryptocurrency Regulatory Landscape Prior to 2024

In the years leading up to 2024, Canada’s approach to cryptocurrency regulation evolved significantly, adapting to the dynamic nature of the crypto market. The Canadian regulatory framework did not feature specific legislation exclusively for cryptocurrencies but applied a range of existing laws to various aspects of the crypto ecosystem. This included regulations for Anti-Money Laundering (AML), securities, tax, consumer protection, and contract law.

AML and Counter-Terrorism Financing Compliance

Crypto businesses were required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). This included adhering to comprehensive regulations covering record-keeping, reporting, identity verification, and compliance obligations.

Securities Laws

The Canadian regulatory environment treated certain crypto activities like capital raising, trading, or investment services under securities laws. This brought a significant portion of the crypto market under the umbrella of traditional financial regulation.

Tax Laws

Canadian tax laws mandated the reporting of crypto income or gains, ensuring that transactions involving cryptocurrencies were subject to the same tax obligations as traditional financial transactions.

Consumer Protection Laws

These laws were applicable to crypto transactions involving goods, services, or dispute resolution, providing a safety net for consumers engaging in crypto transactions.

Contract Law

Crypto agreements were governed under the general principles of contract law, ensuring the enforceability and legal recognition of these digital contracts.

Enhanced Investor Protection and Oversight

In 2023, Canada introduced several new measures to enhance oversight and protection in the crypto sector. The Canadian Securities Administrators (CSA) issued new guidance, including a pre-registration process for exchanges and other platforms. This process mandated compliance with enhanced investor protection commitments, segregated asset classes, and a prohibition on offering margin or leverage to users. Additionally, there were restrictions on margin trading, stablecoins, custody arrangements, and market integrity rules​​​​.

Federal Government’s Comprehensive Framework

The federal government announced plans to develop a comprehensive framework for crypto assets in its 2023 budget. This framework included new powers for law enforcement to freeze or seize crypto assets linked to criminal activity and enhanced reporting requirements for financial institutions.

Taxation Guidance

The Canadian Revenue Agency (CRA) issued guidance on the tax treatment of crypto transactions, clarifying the reporting and taxation of different types of income or gains from crypto activities.

Pre-registration Undertakings

Unregistered crypto trading platforms were given a 30-day period to publish a revised pre-registration undertaking. This included commitments to hold assets in designated trust accounts or with an acceptable third-party custodian. This move was aimed at protecting users from insolvency risks, fraud, and hacking risks​​​​.

These developments reflect Canada’s proactive approach to regulating crypto assets, balancing innovation with investor protection. The Canadian government’s stance was not to drive away crypto businesses but to integrate them into a regulated framework, ensuring user protection against various risks. Despite these efforts, the regulatory landscape posed challenges and complexities for crypto businesses and users, who needed to comply with multiple rules and obligations across different regulators. The evolving nature of these regulations underlines the Canadian government’s commitment to adapting to the fast-paced and changing world of cryptocurrencies while safeguarding the interests of investors and consumers.