Canadian Regulators: 'Many' ICO Tokens Meet Securities Definition

Regulators in Canada have become the latest to publicly discuss the legality of blockchain-based initial coin offerings.

AccessTimeIconAug 24, 2017 at 4:05 p.m. UTC
Updated Sep 13, 2021 at 6:51 a.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

Securities regulators in Canada have released a wide-ranging statement on initial coin offerings or ICOs.

on "Cryptocurrency Offerings" from the Canada Securities Administrators (CSA) – an umbrella group composed of the country's regional and local securities watchdogs – provides the clearest indication yet as to how regulatory bodies plan to oversee the emerging funding model.

The release comes after regulators in Ontario published an advisory on ICOs in March, and just under a month after the US Securities and Exchange Commission stated that its rules may apply to some token sales.

The notice outlines the requirements for companies involved in the launch and management of ICOs, as well as the exchanges that later list those assets for trading. Perhaps most notably, it reveals that "many" of the digital tokens investigated by regulators in Canada fall under the definition of a security, thereby triggering a range of legal requirements.

As the notice states:

"We have received numerous inquiries from fintech businesses and their legal counsel relating to ICOs/ITOs. 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. In arriving at this conclusion, we have considered the relevant case law, which requires an assessment of the economic realities of a transaction and a purposive interpretation with the objective of investor protection in mind."

This sentiment – that such tokens are more likely to fall under the definition of a security – is echoed elsewhere in the notice, where staffers point out that some ICO promoters have "[taken] the position that the coins/tokens are not subject to securities laws."

"However, in many cases, when the totality of the offering or arrangement is considered, the coins/tokens should properly be considered securities," the CSA wrote. "In assessing whether or not securities laws apply, we will consider substance over form."

The notice, which is republished below, also includes guidance for firms looking to create cryptocurrency investment funds in Canada. It further invites firms that are interested in launching an ICO to consider signing up for a so-called regulatory sandbox, through which new financial products can be tested in a limited setting.

"In order to avoid costly regulatory surprises, we encourage businesses with proposed cryptocurrency offerings to contact their local securities regulatory authority to discuss possible approaches to complying with securities laws," the notice states, adding:

"We welcome digital innovation and we recognize that new fintech businesses may not fit neatly into the existing securities law framework."

The full staff notice can be found below:

Image via Shutterstock

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk offers all employees above a certain salary threshold, including journalists, stock options in the Bullish group as part of their compensation.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.