Toronto-based Coinsquare Ltd. is set to become the first cryptocurrency exchange that is registered as a dealer and marketplace member by the Investment Industry Regulatory Organization of Canada, while other crypto companies across the country continue to seek that status.
The new designation from IIROC has been years in the making. It will allow Coinsquare to be treated much like other institutional brokerage platforms, such as TD Direct Investing or Questrade, with stringent compliance oversight and auditory requirements. It also allows some limited insolvency protection through the Canadian Investor Protection Fund, and approves Coinsquare to become an alternative trading system in the future.
IIROC is an organization overseeing investment dealers and their trading activity in debt and equity markets in all 13 provinces and territories. It sets standards to protect investors and enforces market integrity rules through Canadian legislation.
Founded in 2014, Coinsquare is among Canada’s oldest digital asset firms and recently acquired another Toronto-based crypto company, CoinSmart Financial Inc.
By as early as 2018, Coinsquare had been seeking to become an IIROC member. But while it waited, in early 2021, the Canadian Securities Administrators, an umbrella group for provincial and territorial securities commissions, issued the first guidelines about how to regulate crypto companies in the country.
Under those guidelines, which largely remain a patchwork across Canada, crypto exchanges must apply to a regulator to become restricted dealers. That would allow them to conduct trades and route orders, earning a fee on each transaction. But it also gives them a two-year window to eventually become IIROC dealers. And none of the Canadian platforms registered as dealers by provincial or territorial authorities have yet to meet that benchmark.
In an interview on Wednesday, Coinsquare chief executive Martin Piszel said the process to get IIROC’s approval was long and intensive. It also involved hiring a number of new employees as the heads of compliance, legal affairs and capital markets at the company.
“Because we were the first, we really had to work with the regulators to kind of craft the framework and really bring them along, so that they understand the crypto industry as well as they understand the traditional securities industry,” he said.
However, Mr. Piszel believes it was worth it, because it provides customers with safeguards. He said it helps to prevent incidents such as what happened over the summer with the bankrupt, New Jersey-based crypto lender Celsius Network Ltd. It abruptly halted all transactions and withdrawals for its nearly two million customers citing “extreme market conditions,” sending cryptocurrencies into a global tailspin.
“Those were unregulated entities and there have been many others who were able to do whatever they wanted with their clients’ assets,” he said. “This brings us into the mainstream and protects our customers.”