In August 2017, we considered the guidance offered by the Canadian Securities Administrators (CSA) regarding the application of securities laws to the blockchain industry and initial coin offerings (ICOs), primarily as set out in CSA Staff Notice 46-307 Cryptocurrency Offerings.  In that post, we noted that the CSA have provided little guidance regarding when they would consider cryptocurrencies to be securities, and thus subject to Canadian securities rules.

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On August 24, 2017, the staff of the Canadian Securities Administrators other than Saskatchewan (CSA) published CSA Staff Notice 46-307 Cryptocurrency Offerings (the Staff Notice) in response to increased activity within the distributed ledger technology or “blockchain” industry. The Staff Notice provides guidance regarding the application of Canadian securities laws to businesses operating in that industry, in particular those undertaking initial “coin” or “token” offerings (ICOs), exchanges on which those coins, tokens and cryptocurrencies are traded and investment funds that invest in such assets.

The Staff Notice provides that in the CSA’s view many coins, tokens and cryptocurrencies fall within the definition of “securities” under Canadian securities laws. An offering of such tokens would therefore require a prospectus or exemption from prospectus requirements and businesses supporting and operating ancillary to such tokens could be subject to registration requirements. The Staff Notice also provides that such products may also be derivatives and subject to the derivatives laws adopted by the Canadian securities regulatory authorities.

The Staff Notice confirms speculation among industry participants and advisors that Canadian regulators would take this approach, which is similar to the positions articulated by the United States Securities & Exchange Commission and securities regulators in Singapore.

With respect to ICOs, the Staff Notice provides that, from the CSA’s perspective, many of the ICOs completed to date involved the sale of securities and that securities laws in Canada will apply if the person or company selling the securities is conducting business from within Canada or there are Canadian investors in the tokens.

The CSA are aware of businesses marketing their tokens as software products and taking the position that the tokens are not subject to securities laws.  It appears to be the CSA’s view, however, that in many cases, when the totality of the offering or arrangement is considered, the tokens should properly be considered securities.  In assessing whether or not securities laws apply, the Staff Notice states that the CSA will consider substance over form and apply a purposive interpretation to the law with the objective of investor protection in mind.


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