CSA Staff Notice 81-336 Crypto Asset Investment Funds Guidance

The notice applies to public crypto asset funds, a category described by CSA staff as investment funds that seek to invest in crypto assets directly or indirectly, including through derivatives or fund-of-fund structures. It places these funds within the same regulatory framework used for other publicly distributed investment funds in Canada, including registered investment fund managers, portfolio manager registration, prospectus disclosure, operational rules under NI 81-102, and daily net asset value calculations under NI 81-106.

CSA staff reported that, as of April 30, 2023, Canada had 22 public crypto asset funds with approximately C$2.865 billion in net assets. Those funds sought exposure only to bitcoin and ether at that time, primarily through direct holdings, exchange-traded fund structures, or fund-of-fund structures.

CSA staff identifies fair valuation, liquidity, and legal classification as central questions for any crypto asset proposed as a public fund holding. The notice states that staff would consider evidence of an active market, a regulated futures market, and regulated, transparent pricing indices when reviewing whether a crypto asset can support reliable fund valuation. It also emphasizes liquidity risk management, including stress testing and ongoing monitoring of the underlying crypto asset market.

Custody is one of the notice’s most concrete operational areas. CSA staff says public crypto asset fund assets, including crypto assets, must be held by custodians or sub-custodians that qualify under NI 81-102. Staff expectations for crypto custodians include relevant expertise, primary cold-wallet storage, asset segregation visible on-chain or in books and records, website security controls, insurance for corporate crime or theft, and annual SOC-2 Type-2 reports or equivalent control reviews.

The notice treats staking as a risk area rather than a blanket approval. CSA staff says staking may involve a security or derivative depending on how it is conducted, may affect whether an asset is liquid under NI 81-102, and may raise issues under fund restrictions on lending, guarantees, or management involvement. Staff expects public crypto asset funds interested in staking to conduct their own legal and operational due diligence, keep crypto custodians in possession and control of staked assets, use third-party validators rather than acting as validators themselves, and monitor slashing, downtime, and liquidity risks.

The notice also links public crypto asset funds to registrant obligations. CSA staff reminds registrants that purchases, sales, recommendations, and other investment actions involving public crypto asset fund securities require compliance with know-your-client, know-your-product, and suitability obligations. The notice expressly cautions that crypto asset exposure, including through public investment fund securities, carries elevated risk and may not be suitable for many investors.