Canadian Regulators Continue Enforcement Efforts Aimed at Offshore Crypto Platforms

Written By Andrew Bozzato, Simon Grant and Michelle Galati

Canadian regulators want to ensure that crypto-asset trading platforms (CTPs) know that they will not be able to evade Canadian and Ontario securities law sanctions by withdrawing from the Canadian market. As part of a continuing coordinated effort to ensure adherence to Canadian securities regulations that we wrote about in March 2023 Canadian Securities Regulators Announce Increased Oversight on Crypto-Asset Trading Platforms and Clarify Stablecoin Guidance and May 2023 Crypto-Asset Trading Platforms React to Increased Scrutiny and New Guidance from the Canadian Securities Regulators, the Ontario Securities Commission (OSC) is communicating that it will continue to collaborate with international securities authorities to pursue enforcement action against non-compliant CTPs, regardless of the location of their operations.

On September 5, 2023, the OSC issued a Statement of Allegations against Phemex Limited and Phemex Technology PTE. Ltd. (Phemex or the Respondents), a Singapore-incorporated company that operates the Phemex crypto trading platform.

Phemex operates an online platform on which investors can trade securities and derivatives, including crypto assets. While the platform may currently be inaccessible to those using an Ontario IP address; the OSC alleges that it was previously available to Ontario residents between November 25, 2019, to January 6, 2023, and therefore squarely falling within the jurisdiction of Ontario securities laws.

According to the OSC's allegations, the Respondents failed to comply with the necessary registration and prospectus requirements of Ontario securities laws, in effect depriving investors of essential protections and undermining confidence in the fairness and efficiency of Ontario's capital markets.

We have observed that several offshore-headquartered CTPs have recently withdrawn from the Canadian market, in part relating to the recent regulatory guidance. As discussed in Bennett Jones' recent blog posts titled Crypto-Asset Trading Platforms React to Increased Scrutiny and New Guidance from the Canadian Securities Regulators and Canadian Securities Regulators Announce Increased Oversight on Crypto-Asset Trading Platforms and Clarify Stablecoin Guidance, earlier this year the Canadian Securities Administrators introduced Staff Notice 21-332 which included enhanced pre-registration requirements for CTPs operating in Canada. These developments were followed by a trend of departures from Canada by CTPs based in offshore jurisdictions, with some CTPs citing the new regulations as a reason for their decision to leave.

Despite having seemingly ceased operating in Ontario, the OSC has continued its enforcement action against the Respondents and others, in this case collaborating with the British Virgin Islands Financial Services Commission and the Monetary Authority of Singapore. The OSC has collaborated with several of its counterparts around the world and is likely to continue to enforce Ontario securities laws.

The Capital Markets Tribunal has issued a Notice of Hearing and set the matter down to be heard on September 26, 2023.

If you have any questions regarding Staff Notice 21-332 and its implications for your business or with respect to crypto-asset regulation generally, please contact the authors or another member of the Bennett Jones Fintech group or Capital Markets group.

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