Ontario Securities Commission Takes Action Against Crypto Exchange Poloniex

May 26, 2021 04:00 PM
Crypto Story of the Day

Crypto Story of the Day




Crypto was broadly up this morning with alt-coins outperforming. Spot volumes have shrunk to roughly half of their 30-day average.

Crypto Story of the Day

Yesterday, the Ontario Securities Commission (OSC) revealed an enforcement action against Seychelles-based crypto-to-crypto exchange Poloniex for “operating an unregistered crypto asset trading platform.” The OSC had previously given crypto trading platforms an April 19 deadline to contact the regulator in order to “discuss how to bring their operations as a dealer or marketplace into compliance.” 

According to the OSC, Poloniex, which encouraged Canadians to use the platform and allowed Ontario residents “to trade crypto asset products that are securities and derivatives,” failed to contact the regulator ahead of the provided deadline. In a document outlining allegations against Poloniex, the exchange is alleged to have “failed to comply with the registration and prospectus requirements under Ontario securities law.”

In March, the OSC and Canadian Securities Administrators (CSA) published “Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements.” That guidance, which was accompanied by the aforementioned April 19 deadline, recognized most instances of crypto trading as the trading of “crypto contracts,” which the regulator views as securities. 

The guidance also described registration requirements for crypto trading venues with the Investment Industry Regulatory Organization of Canada (IIROC) and as alternative trading systems (ATS). That guidance was preceded by a CSA staff notice for publicly listed crypto firms regarding disclosure requirements that are specific to the crypto industry. 

In March, when the OSC released guidance that defined spot trading of crypto as a security contract due to its lack of an immediate settlement of the physical coins, we described the approach as highly specific and one that focused on the characteristics of trading platforms, rather than the nature of the assets. 

While the OSC’s approach to interpreting crypto trading is markedly different from the U.S. CFTC’s, for example, the regulator’s broader effort to bring crypto businesses within regulatory and legal frameworks is typical and reminiscent of actions against BitMEX, Block.one, and Ripple. 

The allegations against Poloniex also represent another example of where crypto-specific technologies and methods— i.e. not allowing fiat deposits, as is the case with Poloniex— have failed to ward off regulatory requirements. Having said that, compared to previous actions against crypto businesses, the allegations by the OSC don’t include what could’ve been more serious charges related to AML or KYC. 

This more benign approach to an offshore platform will also be notable to local platforms, which have spent significant resources to remain compliant with evolving Canadian rules.

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