The Canadian Securities Administrators (CSA) are gearing up to move ahead with significant new fund regulation. This is the second part of their plan to oversee crypto assets. These amendments are intended to codify current practices that have been applied in the review and approval of crypto fund prospectuses. This announcement marks a significant step towards creating a more predictable regulatory environment for the rapidly growing crypto marketplace in Canada.

Codifying Crypto Fund Practices

The rule changes are scheduled to go into effect on July 16, subject to government approvals. These modifications are meant to reflect the exemptions that were repeatedly given to crypto funds. These exemptions were designed to be temporary as regulators moved slowly to adopt these new experimental funds into the investment ecosystem. The CSA is in the process of writing these provisions into the formal rules. This action is intended to provide greater transparency and uniformity in the regulation of crypto investments.

The goal of the rule changes is to codify the practices adopted through the prospectuses review and approval process for crypto funds. These practices were championed to get innovative capital into the investment ecosystem. The CSA is now implementing changes to the fund rules that would include these provisions in the rules.

“will provide investment fund managers with greater regulatory clarity concerning investments in crypto assets,” - CSA

Revisions and Implementation

After a January 2024 listening session, the CSA retracted some of the above proposed rule changes. These changes were considered non-material changes removing the necessity for a second public consultation period. Provided the required government approvals are received, those amended regulations will go into effect July 16.

“is to facilitate new product development while also ensuring that appropriate risk mitigation measures are built directly into the investment fund regulatory framework.” - CSA

Future Regulatory Landscape

The CSA may be one step closer to realizing its vision for a hostile crypto regulatory environment. Their adoption, recently finalized, is the second step in this three-step process. The third phase, set to begin later this year, will include international public consultation on a more complete regime covering crypto funds. The purpose of the third phase is to create a more robust crypto fund regime. This final phase should be all about establishing a solid, cohesive regulatory framework through which crypto funds can thrive. We want to protect investors and promote innovation in the burgeoning digital asset space.

“By implementing regulations around crypto asset offerings, we aim to provide guardrails in this evolving sector,” - Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC).