Canada proposes changes to investment fund requirements for crypto

On Jan. 18, the Canadian Securities Administrators (CSA) released proposed changes to regulations on how public investment funds treat crypto assets. The proposed amendments under consideration would restrict the activities of public investment funds regarding crypto and establish standards for custodianship.

Under the amendments, only alternative investment funds and non-redeemable investment funds would be allowed to buy, sell or hold crypto assets directly. Other mutual funds would only be able to invest in those funds to receive crypto exposure. The assets invested in would have to be listed on an exchange recognized by a securities regulatory authority in Canada and would have to be fungible.

In addition, assets would have to be insured and custodied in cold wallets. An annual review of the custodian’s internal management by a public accountant would be required.

The changes will be incorporated into National Instrument 81-102 Investment Funds and the Companion Policy that accompanies it. A national instrument is a regulation or order that has been adopted in all Canadian provinces and territories. Securities regulations are often codified in national instruments since securities are regulated at the provincial level with coordination through the CSA. According to the CSA:

“We think this [greater regulatory clarity] can facilitate new product development in the space while also ensuring that appropriate risk mitigation measures are built directly into the investment fund regulatory framework.”

The amendments are part of a project that was announced in July. The proposals will be open to comment for 90 days and will be followed by the writing of a consultation paper and consideration of a broader crypto asset regulatory framework.

Canada has had spot Bitcoin (BTC) exchange-traded funds since 2021.

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