Cryptocurrency trading platforms warned on compliance
By Robert Davis
16:32, 24 September 2021
Cryptocurrency exchanges and trading platforms may be in violation of Canadian investor protection regulations for their use of potentially “misleading advertisements", regulators said Thursday.
Canadian securities watchdogs published new guidance in response to what they view as an uptick in possible deceptive advertisements and improper marketing strategies by cryptocurrency exchanges.
Such statements, when used to elicit investments, may violate the nation’s securities laws, said Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) in a press release.
Louis Morisset, CEO of the Autorité des marchés financiers, said the advertisements in question “raise concerns about a crypto trading platform’s fitness for registration.”
The price of Bitcoin was down 3.69% at press time to $42,172.53 (£30,813.99) per coin. Other popular assets such as Ethereum and XRP were also down 6.64% and 5.53%, respectively.
False or misleading statements
The new guidance provides several examples of what Canadian regulators consider false or misleading statements pertaining to the marketing of products by cryptocurrency exchanges.
Some examples include stating that an exchange is regulated when it isn’t, suggesting that a securities authority has approved the platform, or materials that influence whether an investor “enter(s) into or maintain(s) a trading or advising relationship” with an exchange.
Instead, the guidance says exchanges should view their marketing and advertising materials “in the context of their obligation to treat their clients fairly, honestly and in good faith under securities legislation.”
“Gambling style” promotions
The guidance also takes aim at what it calls “gambling style promotions,” or advertising that encourages trading by using the “fear of missing out on an investment opportunity” or a reward to elicit investments.
“We are concerned that some of these strategies may inappropriately encourage investors to engage in excessively risky trading, taking on risks that they would normally avoid,” the regulation states.
It also says that “marketing strategies designed to encourage trading” may trigger a suitability review by Canadian regulators. These provisions can also apply to an exchange’s social media posts.
“IIROC will continue to work closely with the (Canadian Securities Agency) to ensure investors are protected,” said Andrew J. Kriegler, IIROC President and CEO.
China
Canada’s guidance comes as China’s central bank warned residents Friday that using cryptocurrencies in the country is illegal - and is stepping up monitoring of its use.
In a Q&A posted on its website, People’s Bank of China said services offering trading, order matching, token issuance and derivatives for virtual currencies are strictly prohibited.
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