How are Digital Currencies Regulated in Canada?

11 Jun 2018
Share Print-Ready Version

Regulation of digital currency has been a topic of hot debate among the governments of the world, and Canada is one country that is quickly trying to formulate its stance and instate regulations it deems necessary. As with most countries today, Canada has had mixed opinions about digital currency regulation.

In an interview with CNBC, Stephen Poloz, the governor of Canada’s central bank, likened investing in digital currencies to speculative gambling, stating that digital currencies are not assets but technically securities with no intrinsic value. He stated that regulations would be impending, if for nothing else but to protect consumers. In the same interview, he said that the underlying technology of digital currency—blockchain—is itself genius and has a multitude of applications. Poloz also explained that despite his proposed regulation, the intent is not to stifle innovation.

Despite these comments, the Canada Revenue Agency (CRA) treats digital currencies as commodities, and digital coins are legal in the country for trading, but not for payments. As with many countries, Canada has taken the stance that digital currencies are not legal tender within its borders, including only the country’s internal notes and coins under that umbrella.

Canada was the first country to implement a national digital currency law to regulate financial technology transactions. Any businesses in Canada who deal in virtual currencies must register with FINTRAC, the country’s federal financial intelligence unit, and will be denied services from banks unless they follow registration and anti-money laundering compliance protocols.

Unlike other countries, Canada’s security laws are not national and overarching, but are instead determined from province to province. Quebec was the first province in Canada to “give the go-ahead to an ICO.”

Former Ontario Securities Commission Chair Howard Wetston said in an interview with BNN, "I see a problem on the horizon, and unless there is a reasonable regulatory framework in place... there could be a huge loss to investors….... People could lose their shirts."

But Canadian officials are not hasty to take extreme action to regulate digital currency, knowing well the impacts such technologies may have on a changing world. They are, however, clear in their pursuit against predatory companies who prey on unsuspecting citizens. For example, the Financial and Consumer Services Commission (FCNB) promptly began investigations into a website which claimed to operate as a cryptobank and offered securities advice, despite being registered to do neither. The listed employees and addresses were found to be fake, even in the midst of the company promoting its own ICO.

In response to complaints, the Ontario Securities Commission (OSC) is similarly investigating unauthorized crypto exchanges that may not be adhering to securities laws. Alongside markets, the OSC also flagged token sales in their Statement of Priorities for the next 12 months with an intention to better understand the present risks and regulate these two facets of digital currency. In a similar vein to previous commenters, the OSC cited the province as a “fintech innovation hub.”

Canada is still very much open to innovation in the blockchain and digital currency realms, although with an eye for safety. In fact, Canada has already approved its first blockchain exchange-traded fund (ETF) under the ticker HBLK on the Toronto stock exchange. Plus, the Canadian cryptocurrency exchange, CoinField, has recently announced the addition of 10 new coins in 2018, stating they employ a strict AML/KYC policy in order to fight money laundering. AML/KYC is a process by which users exchange verifiable personal information, such as real names and addresses, social security numbers, and photo IDs in order to link themselves to a transaction. This helps ward off criminals from maliciously taking advantage of cryptocurrency’s privacy and decentralization for illegal operations.

Money laundering in the digital currency realm has become an increasing concern in Canada. The Vancouver Police Department (VPD) recently urged the government to more strictly enforce AML/KYC laws after a 350% increase in cryptocurrency-related filings from 2016-2017 and another 300% jump during 2017.

Canada is still widely considered to be among the most clear about their treatment of cryptocurrency. This Canadian website offers a transparent breakdown of risks and obligations associated with digital currency. It includes information about legal tender status, tax obligations, Bitcoin ATMs, and risks associated with digital currency, such as fewer protections and lack of insurance. However, it also lists basic precautionary measures for citizens who opt to use digital currency, including wallet protection, exchange fees, and waiting for transaction confirmations.

Although Canada does appear at first as a mixed bag of thoughts and opinions, the same can be said for nearly all countries who have begun discussing regulation. On the whole, it appears that Canada is trying to find a reasonable, rational middle ground that allows innovative ideas to flourish while simultaneously protecting its citizens. As of now, they are perhaps the most crypto-friendly country in North America.