The Canadian Securities Administration (CSA), Canada’s regulatory body overseeing securities, has introduced new regulatory requirements for public investment funds interested in cryptocurrency assets.
In a report unveiled on Thursday, the CSA outlined specific rules designed to limit how public funds can engage with cryptocurrencies.
Firstly, the CSA stipulated that only alternative mutual funds and non-redeemable investment funds would have the authorization to directly purchase, sell, and hold cryptocurrency assets.
The report stated, “Mutual funds, with the exception of alternative mutual funds, can only invest in cryptocurrency assets by investing in underlying alternative mutual funds or non-redeemable funds that have cryptocurrency assets in their portfolio.”
Furthermore, the regulations provided clarity on the types of crypto assets that investment funds can hold. Notably, public crypto asset funds are prohibited from acquiring or retaining non-fungible tokens (NFTs) due to the characteristics of NFTs being considered incompatible with investment products offered to retail investors.
The report continued by specifying that “we are proposing to restrict investment funds to investing only in crypto assets that are listed for trading on an exchange recognized by a securities regulatory authority in Canada or serve as the underlying interest for a specified derivative traded on such an exchange.”
CSA Seeks to Formalize New Rules for Crypto Investment Funds
The CSA has imposed additional restrictions on the use of cryptocurrency as collateral in various transactions, such as securities lending, repurchase transactions, or reverse transactions.
The report also suggested that a “money market fund” should not be allowed to purchase or hold crypto assets.
To address some of the unique risks associated with cryptocurrencies, the proposed rules include custody requirements for crypto holdings. The regulators recommended that crypto assets be stored offline in what is commonly referred to as a “cold wallet,” except when they are needed for facilitating purchases or sales.
The Canadian regulators believe that these proposals will offer investment fund managers greater regulatory clarity when it comes to investing in cryptocurrency assets. They anticipate that these measures will not only facilitate the development of new products in the cryptocurrency space but also ensure that appropriate risk mitigation measures are integrated directly into the investment fund regulatory framework.
