FTX debacle shows world has lessons to learn from Canadian crypto regulation

  • National Newswatch

The collapse of FTX, one of the world's largest and — until last week — most trusted cryptocurrency exchanges, has been breathtakingly rapid. Equally astounding is the impact of this debacle on everyday investors. Early estimates suggest billions of dollars belonging to thousands of customers may be impacted, subject to the lengthy and contentious insolvency proceedings that lie ahead.With a cascading series of recent crypto bankruptcies, business failures, and hacks in the headlines, it's no wonder that public trust in the sector is at its lowest in recent memory.Worst of all, we've seen this movie before — though on a smaller scale. It's now been half a decade since the Canadian crypto exchange QuadrigaCX collapsed under suspicious circumstances that are still shrouded in mystery, taking with it millions of dollars' worth of investors' assets.If there's any silver lining to the dark cloud of the QuadrigaCX saga, it's that Canada has become an example for the rest of the world to follow.Much as the Canadian financial system and economy weathered the storm of the 2008 recession better than most, we now have an opportunity to share principles and practices of digital asset regulation that are proven to work.In the wake of the QuadrigaCX collapse, Canadian policy makers and regulators have stepped up to lead the world in sound oversight of the digital asset sector — seeking to protect investors and ensure the stability of our financial system while allowing space for blockchain innovation that makes a substantial contribution to our economy.Working across jurisdictional boundaries, Canadian securities regulators gave crypto exchanges an ultimatum to register with the applicable authorities and bring their operations into compliance with the rigorous risk management standards expected of our traditional financial institutions.In addition, the Alberta government has developed a strong regulatory framework for provincially chartered trust companies to provide secure custody of digital assets — protecting those assets from a wide range of risks and helping to build critical infrastructure for this emerging asset class.And rightly so. Data collected by the Ontario Securities Commission (OSC) recently revealed that some 30 per cent of Canadians plan to invest in cryptocurrencies in the year ahead — though recent headlines have no doubt given some of them cold feet.In the largely borderless world of digital assets, Canadian regulators have limited ability to protect Canadian investors from shady business practices by crypto platforms based in foreign jurisdictions, or those which — like FTX — resist claiming any nationality at all.But there are compelling reasons for the United States and other leading economies to learn from the Canadian experience. The OSC has now approved ten crypto asset trading platforms to serve Ontario investors, and the self-regulatory Investment Industry Regulatory Organization of Canada (IIROC) recently granted investment dealer status to its first crypto trading platform — with more likely to follow.Canada is also home to trail-blazing crypto-based exchange-traded funds (ETFs), which provide investors with exposure to assets like Bitcoin and Ether while mitigating many of the risks associated with direct ownership of crypto tokens. Meanwhile, U.S. regulators are locked in litigation with firms seeking to replicate this model — leaving investors exposed to risky bets on platforms like FTX.The Canadian approach has been largely based on the premise that investors in crypto assets deserve safeguards equivalent to those found in traditional financial institutions and capital markets — with an additional layer of risk management to address the unique characteristics of blockchain.This regulatory framework accepts that, like it or not, millions of Canadians are likely to include crypto assets in their financial portfolios in the coming years.There's more work to do — particularly in negotiating and streamlining the patchwork of provincial and federal regulations — but Canada is well on its way to showing how blockchain innovation and investor protection can not only coexist, but compliment each other.For as long as crypto retains some characteristics of the Wild West, Canada's regulatory sheriffs — and the companies that seek cooperation, not conflict —  have an essential role to play in restoring trust, rebuilding confidence, and realizing the positive potential of blockchain innovation.Adam Miron is Executive Chairperson and Interim CEO of Brane Inc. a Canadian digital asset custody firm.