Canada is proposing a regulatory framework for cryptocurrency exchanges, which is being seen as a direct response to the loss of $137m in crypto assets in the ongoing QuadrigaCX scandal.
In February it was revealed that Gerald Cotten, CEO of Canada’s once largest cryptocurrency exchange QuadrigaCX, took the password to the platform’s cold wallet storage to the grave.
Since then investigators have attempted to locate the customer funds in a scandal filled with twists, turns and conspiracy theories.
The consultation paper, released yesterday by the Canadian Securities Administrators (CSA), aims to address areas such as safeguards, insolvencies and conflicts of interest.
The CSA is seeking feedback from the fintech and crypto community.
“We intend to use this feedback to establish a framework that provides regulatory clarity to Platforms, addresses risks to investors and creates greater market integrity,” the paper states.
Canada cryptocurrency regulation: A thinly-veiled nod to the QuadrigaCX scandal
Although there is no direct mention of QuadrigaCX in the 28-page document, there are parts that seem to directly address some of the issues underlying the scandal, such as allowing one person to have sole control of the exchange’s entire reserve.
“Platforms may not have sufficient processes, policies and procedures in place to establish an internal system of controls and supervision sufficient to prudently manage the risks associated with their business, including business continuity risks, key personnel risks and regulatory compliance risks.”
In another example, the paper states:
“Platforms may not have necessary processes and controls in place to segregate participants’ assets from their own and to safeguard those assets, including maintaining and safeguarding any private keys associated with wallets held by the Platform.”
Cotten’s wife recently said that her late husband might have used his own money to fund customer withdrawals.
Andy Bryant, Europe COO at Tokyo-based cryptocurrency exchange welcomed the news but cautioned that more needs to be done.
“It’s great to see the Canadian authorities proposing a regulatory framework for crypto trading, however there’s still a way to go until we see borderless regulation implemented globally,” he said.
“Until that happens, the responsibility lies with both the trading platforms and the traders themselves.
“Reputable exchanges will hold licenses from financial authorities which hold them to the highest standards of asset security, including proper internal controls for recoverability and backup – which we sadly saw wasn’t the case with QuadrigaCX.”
He added that users should educate themselves on the basics of cryptocurrency exchanges and security to help decide which exchanges they choose to hold their assets.