Are we getting Canadian Regulations for Crypto Trading?


By Richard Stobbe

In February 2019, we reviewed the story of QuadrigaCX, and raised the question of how this would impact the adoption of cryptocurrencies or other tokens that are powered by the same blockchain or distributed ledger technologies (DLT) that underpin BitCoin. In particular we suggested that some regulatory oversight might be warranted. See: QuadrigaCX and the Missing Millions: A Crypto Cautionary Tale .

In March 2019 the Joint Canadian Securities Administrators (CSA) and IIROC (Investment Industry Regulatory Organization of Canada) issued a Proposed Framework for Crypto-Asset Trading Platforms (PDF). From a regulator’s perspective, many of these crypto-questions fall into the crack between CSA and IIROC.

Setting the stage to close that gap with regulatory engagement in Canada, the report notes that there are over 2,000 “crypto assets” in the wild, some trading for fiat currencies and others for various types of crypto-tokens, using over 200 different platforms. “Many of these Platforms,” say the report’s authors, “operate globally and without any regulatory oversight.”

There are a variety of crypto assets but currently they can generally be categorized from a regulatory perspective in one of two ways:

  1. Either they are akin to a commodity or currency, often referred to as “utility tokens”, which are created to allow holders to access or purchase goods or services on a DLT network. Crypto assets that are a “form of payment or means of exchange on a decentralized network, such as bitcoin”, says the report, “are not currently in and of themselves, securities or derivatives. Instead, they have certain features that are analogous to existing commodities such as currencies and precious metals”;
  2. Alternatively, crypto assets can be more akin to tokenized versions of traditional securities, derivatives or investment contracts, in the sense that they operate like shares in a company, or an interest in assets. If the crypto assets mimic the features of securities or derivatives, and are traded on an exchange platform, then that platform should be subject to existing securities regulatory requirements.

One of the regulatory problems is that the feature-sets of many crypto assets continually blur the lines between “currency” and “security”. Existing securities legislation may still apply to exchange platforms that offer trading of crypto assets even if those are tokens more like commodities, particularly where the investor’s contractual right to the cryptocurrency asset behaves like a security or derivative. Among the challenges that are unique to crypto exchange platforms is that these tokens and coins trade on a global basis, both on exchange platforms and off, both inside and outside regular trading hours, without any central source for pricing or reliable reference data. The values are “illiquid and highly volatile”. From a market surveillance point of view, this makes the regulatory enforcement uniquely challenging.

Essentially, the CSA/IIROC proposed platform framework would apply to “Crypto-Asset Trading Platforms” that are subject to securities legislation and that may not otherwise fit into other existing regulatory categories. Among the recommendations in the paper, crypto-trading platforms may have to become registered as investment dealers and meet compliance requirements for IIROC dealer and marketplace members.

Notably, this regulatory scheme would apply both to Platforms that operate in Canada and to those that have Canadian participants.

Enforcement is not really addressed here, but that’s another debate altogether.

The comment period is open until May 15, 2019.



Additional Reading: CSA Staff Notice 46-307 Cryptocurrency Offerings and CSA Staff Notice 46-308 Securities Law Implications for Offerings of Tokens, NI 21-101 Marketplace Operation, NI 23-101 Trading Rules and NI 23-103 Electronic Trading and Direct Access to Marketplaces.

Calgary – 07:00 MST

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Alberta’s Prospectus Exemption For Start-Up Businesses

By Richard Stobbe

If you’re a start-up, raising money can feel like a full time job.

Alberta recently brought in a few rule changes which may be of interest: ASC Rule 45-517 Prospectus Exemption for Start-up Businesses (Start-up Business Exemption – PDF) (effective July 19, 2016) is designed to “facilitate capital-raising for small- and medium-sized enterprises on terms tailored to deliver appropriate safeguards for investors.” Second, Alberta is considering the adoption of Multilateral Instrument 45-108 Crowdfunding (MI 45-108) and opened it for a comment period in July.

Crowdfunding (MI 45-108)

If the crowdfunding rules are adopted for Alberta issuers, it would facilitate the distribution of securities through an online funding portal in Alberta as well as across any of the other jurisdictions which have adopted it. Alberta would join Saskatchewan, Manitoba, Ontario, Quebéc, New Brunswick and Nova Scotia who have already adopted MI 45-108.

Start-up Business Exemption (Rule 45-517)

As for the new Start-up Business Exemption, here are the essentials as pitched by the ASC:

  • Designed for Alberta start-ups seeking to raise funds from Alberta investors
  • Aimed at “very modest financing needs”, see the caps below
  • Designed to be a simpler and less costly process
  • Can be used by issuers wishing to raise funds through their friends and family, or to crowdfund through an online funding portal provided the portal is a registered dealer, and funds are raised only from Alberta investors
  • The issuer can issue common shares, non-convertible preference shares, securities convertible into common shares or non-convertible preference shares, among other securities
  • Issuer must prepare an offering document
  • There is a cap of $250,000 per distribution and a maximum of two start-up business distributions in a calendar year
  • Aggregate lifetime cap $1 million
  • Designed for a maximum investment amount of $1,500 per investor.  However, through a registered dealer, the maximum subscription from that investor can be as high as $5,000.
  • The offering must close within 90 days.
  • There is a mandatory 48 hour period for investors to cancel their investment
  • The issuer must provide each investor with a specified risk disclosure form and risk acknowledgment form.

Interested in hearing more?

Get in touch with Field Law’s Intellectual Property and Technology Group.

Calgary – 07:00 MST

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Crowdfunding: Tips for the Start-Up

By Richard Stobbe

If you are a start-up considering the crowdfunding route, let’s talk. Here are a few tips to consider:

  • IP: Most crowdfunding portals require extensive disclosure of the start-up’s business plans and product prototypes. That makes sense – after all, investors want to know what they’re investing in. The start-up should consider the scope of disclosure in light of intellectual property issues. Will the technical info, drawings, or descriptions constitute a public disclosure of the company’s inventions, and if so, this may impact patentability, in Canada or the US or other important markets. Consider patent issues, and also make sure you mark your trademarks and display copyright notices where appropriate.
  • Securities Laws: Raising money from investors? In Canada, perhaps the best way to approach the issue is not to ask “is crowdfunding legal?“. Rather, decide what you want to accomplish and then make sure your efforts are compliant with current laws. Every company must comply with securities laws. An offering to sell shares requires a prospectus or an exemption, and there are a number of exemptions which may be suitable for your start-up. “Crowdfunding” is a nebulous term, and depending on how it is implemented, it may run afoul of current securities laws, or it may be so cost-prohibitive to your start-up that you will choose a different path. The crowdfunding exemption is being developed. Some provinces (such as Saskatchewan) have implemented rules permitting equity crowdfunding. Other provinces such as Alberta are considering such rules.
  • Corporate Issues: As equity crowdfunding rules become more mature, you should consider the implications. Let’s say the rules permit equity crowdfunding in your province. You want to raise $1.5 million (which is the maximum under the proposed Crowdfunding Exemption).  Let’s say each investor kicks in $2,500 for shares in the company (which is the maximum single investment under the proposed Crowdfunding Exemption). That’s 600 shareholders. That means 600 people (most of whom are total strangers) own a piece of your company. Next, you want to raise $2 million from venture capital investors. How will VCs view your company if they are joining 600 minority shareholders? Equity crowdfunding may be a great option for your start-up, it may be the way to get your product to market. Or it may be a bad fit in light of your long-term strategy. Either way, you should go in with your eyes open so you know what you are signing up for.

Get some practical advice as you consider your financing options.

Calgary – 07:00 MST

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Crowdfunding: A Canadian Update

By Richard Stobbe

A Canadian company, Vrvana, Inc. is seeking $350,000 through Kickstarter, to finance its development of a virtual reality headset marketed as the Totem. Vrvana has elected to pursue a reward-based crowdfunding model. For example, minimal donations of $15 come with a newsletter subscription and event invitations. The top end contribution of $8,000 will net a Totem VR headset and a dinner date with the team of engineers.

Crowdfunding attracts headlines and cash, but in Canada the rules and laws surrounding equity crowdfunding are still in development. The securities or equity-based model of crowdfunding refers to small investments in exchange for securities – which has a broad definition meant to capture shares in the start-up company, including pref shares or convertible securities, non-convertible debt securities, or units of a limited partnership. In plain terms, a company could use this method of crowdfunding to raise money by selling a piece of the company, rather than selling products or services.

In Canada, a number of provinces are considering some varation of crowdfunding rules, either for a “Crowdfunding Exemption” or a “Start-up Exemption” or both. Ontario, B.C., Manitoba, Quebec, New Brunswick and Nova Scotia are considering the exemptions. Alberta is considering the public comments, but has not formally published any proposed rules.

Here are the highlights of the proposed Start-up Exemption for crowdfunding in a number of Canadian provinces.

  • There is a cap. The start-up can only raise a  maximum of $150,000 under each offering.
  • The distribution cannot remain open for more than 90 days.
  • There is a limit on the number of times the company can go back to the trough each year – the exemption only be used twice each calendar year.
  • The offering document must disclose the minimum and maximum offering size.
  • One crowdfunding offering at a time. A start-up cannot have two concurrent offerings.
  • The offering materials must be made available to potential investors through a regulated portal (like Kickstarter), which will also be subject to rules.
  • Investor are restricted on what they can contribute – there is a cap of $1,500 for each investment under the exemption.
  • Securities are subject to an indefinite hold period.
  • There are other restrictions, such as the requirement for the start-up to file a report of distribution within 30 days of the closing of the distribution.

The proposed Crowdfunding Exemption is a variation, with a few notable differences: it would have higher thresholds and would be open to both reporting issuers and non-reporting issuers:

  • The company would be able to raise up to $1.5 million during every 12 month period.
  • Investors could invest up to $2,500 per single investment, with an aggregate cap of $10,000 per calendar year.

Remember this is currently proposed, but not yet “legal”. The comment period closed in June, 2014, and Canadian securities regulators are considering comments. Rule changes will not likely come into effect until 2015. However, Saskatchewan has already launched its Equity Crowdfunding Exemption which is similar to the Start-up Exemption summarized above.

In the US, the 2012 Jumpstart Our Business Startups Act (JOBS Act) promised new rules on equity crowdfunding. While the federal rules have not yet been finalized, equity crowdfunding is currently allowed in a number of states that have passed “intrastate” rules. For example, a Maryland company may raise funds from Maryland investors. A dozen US states are considering such rules. Make sure you get US legal advice if you are considering crowdfunding from US investors.

This is a complex area of law, and the current landscape is more splintered than harmonized. If you are a start-up, get some practical advice as you consider your financing options.

Calgary – 07:00 MST

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Alberta’s Innovation System



Join us on March 1, 2012, (see our Events page) for the upcoming meeting of the Licensing Executives Society (LES) on The Alberta Innovation System. Technology commercialization has its challenges. However, resources and funding programs are available to support technology development for small and medium sized enterprises (SMEs) in Alberta. Within Alberta, the “innovation system” has undergone reorganization over the past 2 years. In Calgary, Calgary Technologies Inc., (CTI), and University Technologies International, (UTI) have amalgamated to form Innovate Calgary. Across the province, Alberta Ingenuity, Alberta Research Council, iCORE and nanoAlberta have merged into Alberta Innovates – Technology Futures (AITF).

How does this impact licensing professionals, counsel, advisors, SMEs and entrepreneurs? What do you need to know about commercialization support within Alberta? Attend the LES Alberta Innovation System luncheon with our panel: Darren Massey Senior VP, Innovate Calgary, David Reese, Vice President, Licensing, Innovate Calgary and Scott Bass, Alberta Innovates – Technology Futures.  

Calgary 07:00 MST   

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Canada’s Clean Energy Strategy

Should Canada develop a national clean energy strategy?

There have been calls for a coordinated national approach to leverage Canada’s ability to compete for investment in the clean-energy market, which was worth over $160 billion in 2009. Earlier this year, a report was released to review the rationale for national coordination on this issue [Link to Report: Towards a National Clean Energy Strategy].

Momentum is building: for example, part of this national investment in cleantech is underway through the federal incentives and investment in clean technologies, including through SDTC (Sustainable Development Technology Canada). Alberta has the potential to leverage its own expertise in energy development to take a lead in this arena and Alberta companies have cornered 15% of SDTC funding. The Alberta government also offers various incentives in the biofuels sector (the Bioenergy Producer Credit Program) as well as funding for GHG-reduction technologies through the Climate Change and Emissions Management Fund. CIPO’s recent announcement about a fast-track program for cleantech patents also helps Canada keep pace with the US, UK and South Korea.

Related Reading: The National Post interviewed Richard Stobbe for an article on the plan to fast-track cleantech patent applications: Canada plays catch-up on cleantech patents

Calgary – 13:00 MST

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CleanTech Funding Opportunities

Clean technologies continue to be a significant source of investment capital in 2010. Provincial governments in Canada are looking for ways to attract and retain both the investment dollars as well as the technical and business expertise that flows from those investments.

The Alberta government is accepting applications in the field of bio-energy infrastructure development in connection with a $239 million fund it has established for biorefining. Industry Canada’s database of funding opportunities is listed here.

Contact us for strategic advice on financing, corporate services, and intellectual property protection.

Calgary – 09:00 MST

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CleanTech Funding in Canada

Starting today, Sustainable Development Technology Canada (SDTC) is accepting applications from Canadian companies for funding of clean technologies. Statements of Interest (SOI) are being accepted from today until October 21st for preliminary screening in the fields of Energy Exploration & Production, Power Generation, Energy Efficiency, Transportation, Agriculture, Forestry and Mining and Waste Management.  SDTC is a funding arm established by the Canadian government.

Calgary – 14:30 MST

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The Financial Side

A few weeks ago the Alberta Securities Commission released its review of the Canadian capital markets, comparing Alberta to the markets in Ontario and BC.  The Alberta Capital Market: A Comparative Overview 2007 Report  provides some interesting perspectives on where Alberta stands in different industries in relation to its cousins to the east and west.

While on the topic of capital markets, technology companies are always open to new sources of financing. Here are a few sites which provide some information for entrepreneurs:

  • Ask the VC has good content which is generated on a question-and-answer basis. It is US-based, so the tax issues will not apply to Canadian entrepreneurs.
  • Canadian Entrepreneur has a Canadian focus and some interesting articles for growing companies such as “Anatomy of a Startup”.

Calgary – 10:35 MST

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