By now, you probably have heard that IIROC and the CSA released a joint statement outlining the application of securities law to crypto trading platforms. This means that dealers in virtual currency could meet the definition of a securities dealer, as defined in paragraph 5(g) of the PCMLTFA, which includes “persons and entities authorized under provincial legislation to engage in the business of dealing in securities”. However, dealers in virtual currency also meet the definition of an MSB that is given in paragraph 5(h). This definition includes “persons and entities that have a place of business in Canada and that are engaged in the business of…dealing in virtual currency”. This got me to thinking: “are dealers in virtual currency securities dealers now, or are they still MSBs?”
FINTRAC, released policy interpretation 5404 in 2012, which at first glance would appear to address this issue. This policy interpretation states:
“Should a securities dealer provide money services business (MSB) activities, such as foreign exchange, outside of their securities dealer activities, the securities dealer would be required to register as an MSB. Upon registration as an MSB, the registrant would indicate that their business is also another type of reporting entity (i.e., a securities dealer). As an MSB and a securities dealer, the entity would be subject to all applicable sections of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated regulations.”
However, as security tokens and crypto contracts are now considered to be securities, dealing in those types of products would not be providing a product or service that is separate from securities dealer activities, so this policy interpretation does not provide additional clarity vis-à-vis whether a dealer in virtual currency that is subject to provincial securities legislation is considered to be a securities dealer or an MSB under the PCMLTFA.
As the amendments to the PCMLTFR don’t impose any obligations on securities dealers relating to the exchange or transfer of virtual currency, I would assume that the intent is to continue to regulate dealers in virtual currency as MSBs regardless of whether they are captured by provincial securities legislation, but in light of IIROC and the CSA’s joint statement, it would be nice if FINTRAC were to release an interpretative notice providing clarification on this point.
For more information on the new regulations for Crypto companies, watch this webinar hosted by The AML Shop’s Adam Feldman and Marcelle Dadoun.