In studying a number of cryptocurrencies and upcoming ICOs, Canadian authorities have said that the offerings are similar to the sale of securities and as such should have to abide by the tough rules that exist around them – or seek exemptions.
Legal grey area
While digital currencies boom and ICOs pop up with huge regularity across the globe, governments and regulators are trying to incorporate them into an existing legal framework.
Regulators are trying to keep up with the growth in order to create rules to govern them within their borders, while also not stifling the innovative funding model.
The Canadian Securities Administers, an umbrella group of provincial watch-dogs, has noted that any token whose value is tied to future profits or success of a business should be considered a security.
This obviously seems to encapsulate ICOs whose value is indeed set and determined by future profiteering and success.
The regulators said in a statement:
“With the offerings that we have reviewed to date, we have in many instances found that the coins/tokens in question constitute securities for the purposes of securities laws, including because they are investment contracts.”
Ire of the fintech community
The statement released by the regulators has been labeled as unclear and a little ambiguous, although full of threat and menace.
It has prompted some of Canada’s leading fintech executive to criticize and seek clarity from the Canadian Securities Administrators.
“There still is a lot of gray area in terms of the guidance on when a cryptocurrency or token would be a security,” said Daniel Fuke, a partner in the securities and M&A group at Fasken Martineau.
“It would be nice if we could know from CSA what they were thinking in terms of some of the sub-considerations of the securities law test.”
Pressure from the South
South of the border, in the US, their securities authority already made a big call when it announced that Blockchain companies must obey federal laws because of the DOA incident.
In essence, ICOs would be controlled by these securities laws unless a valid exemption could apply.