CSA Staff Notice 21-333: Value-Referenced Crypto Assets

The notice builds on CSA Staff Notice 21-332, which said value-referenced crypto assets may constitute securities and/or derivatives in several Canadian jurisdictions. It recognizes that registered CTPs and CTPs that submitted pre-registration undertakings are generally restricted from allowing clients to trade crypto assets that are securities or derivatives, but it also states that some clients may use VRCAs. CSA staff therefore described conditions under which staff would consent, on an interim basis, to trading or crypto contracts involving certain FBCAs.

The framework is narrow. It does not apply to VRCAs that are not FBCAs, nor to any new VRCA that a CTP may wish to offer after the publication date of CSA Staff Notice 21-332. The CSA also cautions that satisfying the conditions should not be viewed as approval or endorsement of any VRCA, proof that an asset is risk-free, or proof that its issuer complies with Canadian securities legislation.

Appendix A is the operative part of the guidance for CTPs. It permits a CTP to allow trading or crypto contracts in a VRCA only if the CTP establishes that the asset references the Canadian dollar or U.S. dollar on a one-for-one basis, offers a disclosed redemption right to eligible holders, and is supported by reserve assets.

The reserve conditions focus on asset quality, custody, segregation, and daily coverage. Eligible reserve assets include cash, short-term Canadian or U.S. government debt, regulated money market fund securities, or other assets consented to by regulators. The reserve must be held with a qualified custodian, designated for the benefit of VRCA holders or held in trust, kept separate from the issuer and its affiliates, unencumbered, and valued at least daily.

The notice also sets disclosure and assurance expectations. Issuers must make governance, operating, redemption, fee, reserve, and risk information publicly available. Monthly assurance reports are expected within 45 days after month-end, and annual audited financial statements are expected within 120 days after year-end, starting with the first financial year ending after Dec. 1, 2023.

CTPs must include specific risk statements in crypto asset statements, including that Canadian regulators have not evaluated or endorsed the crypto contracts or assets, that a VRCA is not the same as a bank deposit or cash held with the platform, and that the term “stablecoin” does not guarantee stable value or redemption adequacy. CTPs must also maintain know-your-product review processes and halting or suspension policies if a VRCA no longer satisfies the stated criteria.

The original notice expected issuers to provide undertakings by Dec. 1, 2023. It expected registered CTPs and PRU CTPs to stop allowing clients to buy, deposit, or enter into crypto contracts for non-FBCA VRCAs by Dec. 29, 2023, and to stop doing so for non-compliant FBCAs by Apr. 30, 2024.

CSA updates later changed the FBCA timeline. On Apr. 17, 2024, the CSA extended the April deadline to Oct. 31, 2024. On Sept. 26, 2024, it extended the deadline again to Dec. 31, 2024. The CSA said that after Dec. 31, 2024, registered CTPs or CTPs that provided a PRU can only offer VRCAs that comply with the conditions of their registration and exemptive relief decisions or PRUs.