Canada states that tokens may belong to securities and publish identification methods


nnThe Securities Regulatory Commission recently issued a notice stating that the chain-chain currency may be securities, consistent with previous statements by securities regulators in the United States and Singapore. But the difference between the notice is that the institution is welcome to this new thing as a whole and has published a specific method of identification, giving a guiding proposal. Therefore, this may be more conducive to the development of related enterprises.n
nTranslated by: Inan
For the block chain tokens may belong to the issue of securities, more and more countries are no longer silent.n
From the Securities and Exchange Commission (SEC) and the Singapore Monetary Authority (MAS) each have less than one month on their securities laws to apply for tokens for sale, Canada has issued a warning that contains similar information: the issuer should note that the token May belong to securities.n
On August 24, the Canadian Securities Regulatory Authority (CSA) issued an employee notice about how the Canadian Securities Act would apply to the issuance of encrypted currency – including initial tokens sales, initial tokens, encrypted money investment funds and transactions These products are encrypted by the currency exchange.n
In addition, the notice helps clarify which tokens may be regarded as securities under Canadian securities laws.n
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Welcome attituden
The notice is not the same as the SEC’s recent report and does not focus on specific enforcement actions or potential bad behavior or fraudsters.n
On the contrary, the notice provides general advice to those who consider raising funds through tokens or creating an encrypted money investment fund and inviting them to contact local securities regulators to discuss how to comply with Canadian securities laws.n
In fact, the announcement comes with a welcome tone, CSA Chairman Louis Morisset said:n
n”We are welcome to this innovation … In view of the increasing number of activities in this emerging field, we are issuing guidance to help financial technology companies understand that they are in the applicable securities laws and regulations What obligations are required. “n
nCSA referred to its regulatory “sandbox” in the notice and expressed its encouragement to financial innovation, including the issuance of encrypted money, which pointed out that “we want to encourage financial market innovation to promote the financing of financial and technological enterprises while ensuring that capital markets And investor protection is fair and effective. “n
The notice also wrote:n
n”It is important to keep the demand for new investment opportunities and to protect investors from the need for high risk or fraudulent activities as the encrypted currency becomes more popular and moving to the mainstream, in order to avoid costly regulatory oversight We encourage companies that plan to issue encrypted currencies to contact local securities regulators to discuss compliance with securities laws, we welcome digital innovation, and we recognize that the new financing business may not be in perfect fit with the existing securities law framework. “n
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Actual situation investigationn
The notice is consistent with recent US and Singapore guidance on tokens, and does not mean that all of the encrypted currency issuance will automatically constitute a securities transaction, but will disclose the actual situation investigation.n
CSA noted that, in some cases, under the Canadian securities law, tokens may be treated as a security, a separate assessment of the tokens issue must be made to determine whether they are within the scope of the statute.n
Crucially, CSA pointed out that “in assessing the suitability of securities law, CSA will pay more attention to its substance than the form.”n
In most cases, Canada’s investigation of potential securities is similar to US securities analysis. Section 1 of the Ontario Securities Act (OSA) gives a lengthy but not exhaustive definition of “securities”, including “any investment contract”. The definition may cover the purchase of a token that depends on the future profit or success of a particular firm.n
In Canada, the way to determine whether an investment contract is securities is the way the Pacific Coin takes, that is, the contract involves:n
nCapital investmentn
2. In the same businessn
3. Expected profitn
4. Significantly benefit from the efforts of othersn
nBefore the CSA issued a notice, it was speculated that the Canadian authorities might use other means or a new way to classify and regulate tokens and encrypted currency issuance.n
However, the notice seems to indicate that Pacific Ocean is still the key to determining whether the tokens issue the tokens.n
If a tool complies with the Pacific Ocean test, it is an investment contract and is classified as securities in accordance with OSA Chapter 1.n
If a token is identified as a security through a Pacific Ocean test, the issuance of such tokens may be classified as a securities transaction, in which case the Canadian Securities Act will apply to the transaction.n
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Precautions in securities lawn
The notice also highlights the following precautions:n
Prospectus and Transaction Requirements: In order to comply with Ontario securities laws, the seller must submit a prospectus to the regulator unless it has an exemption privilege.n
Although CSA mentioned in the notice, as of the date of the announcement, no company has used the prospectus exemption in Canada to complete the encrypted currency issue, but it also said that it is expected that the encrypted currency companies may enjoy the exemption of qualified investors (required investment Through the asset test) or the issuance of a memorandum of exemption (the implementation of the issuer’s specific disclosure obligations), depending on the local securities laws.n
The notification also states that consideration should be given to the situation of the tokens on the exchange and the post-release situation and the applicable restrictions on the secondary transactions.n
Registration requirements: If the coin seller conducts business triggering tests through a commercial purpose securities transaction, the seller will be required to register as a trader unless the dealer has a registration exemption.n
CSA in the notice lists the following important factors to determine whether a natural person or entity is trading securities: to a wide range of investors (including retail investors); to use the Internet, including public websites and discussion boards, to attract a large number of potential investors; A large number of investors to raise large sums of money.n
Market requirements: If the encrypted currency exchange provides securities instruments, then the exchange may need to comply with the Securities Act of Canada Management Exchange, as a market application license, or apply for a license exemption.n
CSA also noted that, as of the date of notification, Canada has not yet obtained a license or exempt from the encrypted currency exchange.n
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Other precautionsn
The circular also recommends that financial technology companies that establish encrypted money-related investment funds should be prepared to consider or discuss a range of issues with Canadian regulators, including but not limited to:n
nWhen investors (expected) include retail investors, companies have the potential to meet all prospectus disclosure requirements.n
Conduct due diligence on any encrypted currency transactions that will use the fund to buy and cons.n
The correct registration category, which may include registration as a dealer, consultant and / or investment fund manager.n
The valuation of the monetary and securities in the fund (and the audit of the valuation of the fund) and the selection of one or more encrypted currency exchanges.n
The “custody” of the encrypted currency scenario includes the ability of the relevant trustee to have expertise in encrypted currency storage (including “high temperature or low temperature storage management experience, protection of encrypted money from theft, and ability to separate encrypted currency as needed” “).n
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View n
In general, the notice clarifies that encrypted money, encrypted currency issuance, exchanges and investment funds are still subject to the existing Canadian securities law framework.n
CSA seems to want to collaborate and interact with companies in the tokens to avoid regulatory contingencies while encouraging financial innovation and development.n
As to the case of Saskatchewan in September 7, after the by-election, whether the Fiscal and Consumer Affairs Authority will adopt a similar approach, we will wait and see.n

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