Overview of Securities Regulation in Canada


Overview of Securities Regulation in Canada

Part 1 of the “Smartblock Law Guide to Security Tokens, OTC Trades, Prospectus Exemptions, and Registration”

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Chetan Phull · July 17, 2018


I. Introduction

The purpose of securities law is to protect investors; foster confidence, fairness, and efficiency in capital markets; and to contribute to a stable financial system (OSA, s.1.1).

In the specific context of digital asset transactions, securities law regulates “how tokens and coins are being issued, distributed and sold” (SEC Director W. Hinman’s June 14, 2018 speech).

This series of articles considers various key securities issues arising in the blockchain context, with respect to Canadian federal and Ontario laws.

After reading this series of articles, it should be evident that a manageable compliance campaign, in the present regulatory climate, requires careful planning.

We invite you to consider our service offerings in “ICOs / ITOs and digital asset dealing / advising”.


II. The Canadian securities regulatory environment

Unlike the U.S., Canada has no federal securities law or regulator. Rather, each province and territory is responsible for its own legislation and regulation of securities.

An attempt to create a federally binding securities regime in 2011 failed for Constitutional reasons (Reference re Securities Act, 2011 SCC 66).

Since then, several provinces and the federal government have continued to work toward a unifying federal regulatory body (draft Capital Markets Stability Act; ”Renvoi case”, 2017 QCCA 756).

However, the appropriateness of a federal regulator continues to be the subject of debate (H. Naglie, “Not Ready for Prime Time: …”, C.D. Howe Institute, No. 489 [Sept 2017]).

In response to the concern for inconsistent regulatory approaches within Canada, the Canadian Securities Association (“CSA”) has attempted to create harmony among the individual securities regulators, through national instruments and policies which every regulator can adopt.

One of the mandates of the CSA is its “passport system”, through which a market participant can access the capital markets of all passport jurisdictions through a principal regulator (see MI 11-102).

However, the Ontario Securities Commission (“OSC”) is not a passport jurisdiction and has reserved the right to make its own decisions (see the 2004 Memorandum of Understanding, which Ontario did not sign; “Note” re History of MI 11-102; NI 11-202, ss.3.1, 5.2-5.3).

In the fintech space, the CSA Regulatory Sandbox offers a means for businesses to obtain exemptive relief from certain securities law requirements throughout Canada, on a time-limited basis.

An application to the Regulatory Sandbox “should be ready to provide live environment testing, a business plan and a discussion of potential investor benefits (including how it will minimize investor risks).”

The CSA Regulatory Sandbox’s division in Ontario is the OSC LaunchPad.

If you require representation before the OSC LaunchPad, we invite you to consider our service offerings  in “ICOs / ITOs and digital asset dealing / advising”.


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