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QuadrigaCX Scandal Jolts Canada to Regulate Cryptocurrency Exchanges

Last Updated March 4, 2021 3:19 PM
Melanie Kramer
Last Updated March 4, 2021 3:19 PM

The infamous QuadrigaCX scandal has culminated in the losses of $150 million in user’s cryptocurrency funds. Now, Canada has called for “input” on tailoring new regulation to cryptocurrency exchanges operating within its borders.

Canada’s Securities Regulator and Investment Body Issue a Consultation Paper to Increase Investor Protection

Canada has held back on detailed cryptocurrency regulation. It currently adopts a wait and see approach and utilizes its existing securities laws and regulators. In this way, Canada monitors and guides emerging fintech and cryptocurrency businesses in the country.

An exchange’s entire funds vanishing as the founder dies without leaving access to cold cryptocurrency wallets could be a regulatory turning point for Canada. With the QuadrigaCX scandal growing and changing almost daily, Canada’s regulators nod to building “consumer confidence” and “investor protection” in the press release  issued today.

The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have jointly published a consultation paper  with which the pair seek “input from the fintech community, market participants, investors and other stakeholders.”

The paper questions how regulation could be tailored to Canadian cryptocurrency exchanges. Though it also signifies Canada is continuing an open approach to a sector positively impacting its economy.

Cryptocurrency Exchanges in Canada Welcome Regulation

Louis Morisset, CSA Chair says exchanges too are open to the prospect of sensible regulation:

Platforms have told us that a tailored regulatory framework is welcome as they seek to build consumer confidence and expand their businesses.

Andrew J. Kriegler, President and CEO of IIROC says there is a need to “adapt to innovation” in Canada. But, also to “provide clarity” while maintaining said “investor protection.”


There is a potential further nod to the QuadrigaCX scandal. First on the list of areas to address is the “custody and verification of assets.”

Then there are issues of “price determination, market surveillance, systems and business continuity planning, conflicts of interest, crypto-asset insurance, and clearing and settlement.” The consultation paper itself says:

Global incidents point to crypto assets having heightened risks related to loss and theft as compared to other assets.

It also clearly states that as yet no “crypto-asset platforms” are recognized as exchanges. Or, authorized to operate as a “dealer” in Canada.

Safeguarding Crypto Assets – A Priority That Says the Paper May Have Been Written with the QuadrigaCX Scandal in Mind

First on the list of “risks related to platforms” is that “investors’ crypto assets may not be adequately safeguarded.”

The paper adds:

Platforms may not have necessary processes and controls in place to segregate participants’ assets from their own and to safeguard those assets, including maintaining and safeguarding any private keys associated with wallets held by the Platform.

Latest news on QuadrigaCX indicates that founder Gerard Cotton may have used his own money to fund customer withdrawals.

The paper goes on to propose a framework of regulation for exchanges. This may require such platforms to register either as marketplaces or investment dealers, or both. The eventual framework may also mean cryptocurrency exchanges are subject to derivatives rules in Canada.

Meanwhile, the QuadrigaCX scandal continues. The multi-million-dollar personal trading activity of the exchanges co-founder Michael Patryn has further fuelled concern over the missing $150 million in user’s funds. Should resulting Canadian regulation be conducive to health of the sector in Canada it will likely be welcomed by other cryptocurrency exchanges as investors balk at the near billion dollars in cryptocurrency lost in 2018 due to hacks, breaches, heists and other scandals.