Canadian securities regulators are warning cryptocurrency companies against “misleading” advertising and promotional tactics that could potentially lure investors into making risky trades on unfamiliar crypto products.
The Canadian Securities Administrators – an umbrella organization of all 13 provincial and territorial securities regulators – issued an 11-page document Thursday afternoon that clarified the specific dos and don’ts for companies promoting investments in cryptocurrency. The CSA had become aware of ads by certain companies that may have breached securities legislation.
This is the first time securities regulators have come up with detailed advertising guidance directed at both unregulated and regulated crypto-trading platforms in Canada. No specific companies were named in the document.
In particular, regulators took issue with companies that engage investors using “gambling-style contests, promotions and schemes.” The CSA document used the fictional example of a company offering a promotion involving a time-limited bonus for the first 500 investors who invest in a crypto asset.
“We are concerned that some of these strategies may inappropriately encourage investors to engage in excessively risky trading, taking on risks that they would normally avoid,” the document stated.
Crypto-trading platforms are also being warned against representing themselves as regulated entities when they are, in fact, not. In late March, the CSA called on all companies operating crypto-trading platforms for Canadian investors, wherever the platforms are based, to begin the process of becoming regulated. Companies were given a deadline of April 19 to get in touch with regulators.
To date, however, only one crypto-trading platform – Wealthsimple – is fully regulated under Canadian securities legislation. Dozens more are in the process of coming into compliance with securities regulators in their respective provinces. But some, such as China-based Binance, the world’s largest crypto exchange, have opted to not open trading accounts for Canadians instead of going through the compliance process.
What Thursday’s guidance made clear was the fact that crypto-trading platforms are not allowed to suggest to investors that they are regulated just because they are registered as money service businesses with the Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, the country’s anti-money-laundering agency. According to the CSA document, registering with FinTRAC alone is insufficient in protecting the interest of the investor.
An ad suggesting that a particular crypto-trading platform is the “safest” or the “most trusted” would also be considered “overly promotional” according to the CSA, and potentially violate securities legislation.
Crypto-industry insiders, for the most part, welcomed the new guidance on advertising. “I think the document makes a lot of sense because ultimately no one gains from a situation where there are bad actors in the industry saying things that are unrealistic and untrue,” said Justin Hartzman, co-founder and chief executive officer of Toronto-based crypto exchange CoinSmart.
Mr. Hartzman added that it was useful for his company’s internal compliance team to finally have a clear sense of what kind of marketing is allowed and not allowed.
Andrew Kiguel, the co-founder and CEO of Tokens.com, a decentralized finance platform, also welcomed the clarity surrounding advertising rules, but cautioned that an unintended consequence of regulators being increasingly involved in the crypto sector is that it “scares away” legitimate companies.
“I understand that the hype and FOMO [fear of missing out] around bitcoin has led to predatory advertising practices by bad actors,” Mr. Kiguel said. “But when platforms like Binance say they don’t want to do business in Ontario because of how cumbersome the compliance process is, that’s not necessarily positive.”
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