In Canada, the regulators have allowed the use of digital currencies under securities laws as part of the securities regulators authorized to protect the public. Whereas cryptocurrencies are not considered legal tender, but the country’s Income Tax Act welcomes cryptocurrency transactions within its law and rules. The Canada Revenue Agency has disclosed cryptocurrency as a commodity that can be treated as a barter transaction to pay for goods and services.
Besides, the Governor-General of Canada passes his royal assent to Bill C-31, which clearly states the inclusion of amendments to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The new law rules declare virtual currencies as “money service businesses” for anti-money laundering provisions purposes. However, the law has not been passed, waiting for the issuance of subsidiary regulations.
Expected Changes in Cryptocurrency regulations in Canada
In the mid of 2020, the anti-money laundering regulations norms have been reviewed and updated worldwide, especially for the businesses involved with blockchain and cryptocurrency. The new amendments published by the Canadian government to the Proceeds of Crime (Money Laundering & Terrorist Financing Act (PCMLTFA) will affect ongoing cryptocurrency exchanges and operators’ functionality.
According to a published notice, from June 1, 2020, the rule has been effectively passed where all cryptocurrency exchanges in Canada need to get registered with the FinTRAC (Financial Transactions and Reports Analysis Centre of Canada) by the Dept. of Finance. Under the PCMLTFA amendments, the regulations have directed all dealers in virtual currency that serve Canadian clients as segregated as MSBs ( Money Services Businesses). Like other entities, these businesses have to undergo similar treatment due to diligence, record keeping, monitoring, and report requirements under the regulation.
Changes inside the FinTRAC
As of 1st June 2020, the foreign cryptocurrency exchanges need to follow the order of registering through FinTRAC to continue their direct services to Canadian Clients. The registrations will subject exchanges for the same compliance requirements as required to MSB’s apart from recordkeeping. The list of requirements includes;
- Identifying all clients
- Appointing a Compliance officer
- Maintaining records of clients and transactions.
Also, for the category “reporting entity” if anyone receives CA$10,000 (US$7,667) or more in cryptocurrency as deposit or payments must be required to inspect the sender, record details of transactions and submit the receipt of funds directly to FinTRAC. The financial body is authorized to levy AMPs (Administrative Monetary Penalties) to control the adoption of the new regulatory framework, especially in the cases where MSB’s are non-compliant. FinTRAC can rescind the registration of the entities that fail to pay lodged penalties. So far, all existing and impending currency exchanges are instructed to comply with Canadian Securities law.
Lastly, the Crypto Exchanges need to develop a compliance program with the inclusion of KYC policies (Know your customer) and report to FinTRAC if any suspicious transactions are recorded. The process includes;
- Maintaining the record of each client,
- Hiring a compliance officer for the platform.
From June 2020, the KYC compliance turns to be mandatory, which assists in monitoring business relationships, beneficial ownership, determining politically exposed persons/ Heads of International organizations and third parties.
Current Scenario in Canadian Cryptocurrency Regulation
A few days back, Canadian regulators announced new guidelines determining the application of current securities legislation to operations conducted by cryptocurrency exchanges. According to the published orders, several domestic and foreign entities serving Canadian users have to accept and act by the country’s securities law and abide by the functions like securities dealers.
The CSA Regulatory Sandbox approved the Wealthsimple launch, and it becomes, “Canada’s first regulated crypto platform” which is regulated by the federal government. Also, the exchange is surveyed by the regulators of 13 provinces and territories in Canada. Now the clients can simply buy and sell bitcoin, litecoin, ethereum, and other currencies with Wealthsimple Crypto. Initially, the platform offers “No minimum fee for any deposits or withdrawals” for its clients.