In late September, regulators took another step toward bringing the crypto sector to heel.

A joint notice from the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) set out guidance on the marketing activities that may put crypto platforms offside with regulators. The notice highlights possible violations, such as making false or misleading claims, using promotional tactics that encourage risky or excessive trading, and failing to supervise the use of social media to communicate with clients and the general public.

The guidance warns firms against boasting about being the “cheapest” or the “best” source for Bitcoin or professing to be the sector’s “leading exchange” without evidence to support those claims. The warning against baseless online declarations could be a jolt to a sector where hype and bluster is plentiful.

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The crypto sector is known for fake claims about trading volume. One 2019 study from Bitwise Asset Management Inc., a San Francisco-based crypto fund and index provider, claimed that 95% of crypto volume wasn’t genuine.  Last year the OSC settled an enforcement case against Toronto-based crypto firm Coinsquare Ltd. and a couple of its executives who admitted to faking approximately 90% of its volume through wash trading designed to boost its ranking on third-party websites.

The CSA/IIROC notice warned that adherence to marketing rules may come up in registered firms’ compliance reviews or in the application process for firms seeking registration.

The OSC is in registration discussions with 15 platforms, according to OSC public affairs manager Kristen Rose: eight have submitted applications and seven are in “active discussions” with the regulator.

The number of firms seeking registration may continue to grow. After the OSC issued its warning to the sector in March — giving crypto trading firms until April 19 to get in touch about registration or face possible enforcement action — the regulator reported that more than 70 platforms approached it.

Read: 

• Crypto in Canada: Where are we today, and where are we heading?

• Fintech Canada Directory Category: Blockchain | Digital Assets | Crypto

There are already four foreign crypto firms facing enforcement cases from the OSC. The regulator alleges that while the platforms purport to provide investors with trading in cryptoassets, the investors don’t actually hold or control any cryptoassets. Instead, the regulator alleges the platforms are providing inves­tors with trading in instruments (or contracts) that are tied to cryptoassets, which amounts to trading in securities (or derivatives). Without registration, the OSC maintains that’s a violation of securities law.

None of those enforcement cases has been proven at a hearing. Three firms face preliminary hearings later this month and the other in January, at which point the sector will have a better idea about whether the regulator can make its allegations stick — and what sort of penalties will be imposed if the cases are successful.

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