Capital markets News

Canada proposes rules for funds investing in crypto

canada crypto funds

The Canadian Securities Administrators (CSA) published a consultation over new rules for funds investing in cryptocurrencies. It covers the eligible types of crypto, restrictions imposed on funds and digital asset custody. In the United States, the SEC delayed the authorization of spot Bitcoin ETFs based on pricing and market integrity concerns. The CSA expressed similar reservations in the document. It’s running a consultation through to April 17.

Hence, it will restrict which crypto-assets are eligible for investment based on whether the assets are traded on a regulated exchange or an associated derivative is traded. However, the funds do not have to acquire crypto via a recognized exchange.

It also bans nonfungible assets. It considers collectibles inappropriate for a financial investment, although we’d note some NFTs are more financial. However, the CSA states its primary concerns are about liquidity and valuation of NFTs. This is a topic it expects to explore during the consultation.

Alternative mutual funds and non redeemable investment funds can invest directly in crypto. Other types of funds have to invest indirectly via alternative or non redeemable funds. Money market funds are not permitted to invest in crypto.

Digital asset custody

Regarding custody, crypto custodians are expected to keep most assets in offline cold wallets apart from the need to make purchases and sales. For this point, it makes no mention of staking, although the topic was covered more generally in a previous communication. Additionally, custodians must keep insurance, and an accountant will conduct annual reviews of their controls.

It also provides separate guidance about keeping the crypto in a segregated or omnibus wallet and using multi-signature and multi-factor authentication. It goes without saying that it specifies strong cybersecurity and physical security.

Exchange traded funds (ETFs) can accept crypto as payment for subscription to the fund units. 

Meanwhile, the topic of funds and crypto is being raised worldwide, particularly since the first spot Bitcoin ETFs launched in the United States. Singapore reiterated that it doesn’t believe crypto is appropriate for retail investment schemes. Last October, the Hong Kong Monetary Authority said foreign-issued spot crypto ETFs cannot be sold to its residents. However, spot crypto ETFs might be issued in Hong Kong soon.

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