STO Registration Procedures in Canada
Chetan Phull is the founder of Smartblock Law Professional Corporation, a law firm in Toronto focused in blockchain, data privacy, IT contracts, and litigation. He is also an international speaker on cross-border legal management of blockchain operations. He has delivered blockchain law seminars for the Dubai government, and has upcoming seminars in London, Frankfurt, Dubai, and Abu Dhabi. He is a blockchain law instructor with the Blockchain Hub at York University, and an expert legal panelist at various industry events. Chetan has been published or quoted in several magazines on cryptocurrency issues, including the Canadian Bar Association National Magazine, Law Times, Canadian Lawyer Magazine, and Bitcoin Magazine.
What are the main regulations that exist in your region if you’d like to launch an STO/ICO?
Securities law in Ontario is governed primarily by the Securities Act, RSO 1990, c S.5.
For an overview of the securities regulatory landscape in Ontario, see the Smartblock Law article, “Overview of Securities Regulation in Canada,” which is part 1 of the Smartblock Law Guide to Security Tokens, OTC Trades, Prospectus Exemptions, and Registration.
There are a multitude of other regulations that must also be considered prior to launching an STO/ICO.
For example, consider Canada’s virtual currency regulations, which will be embedded within federal anti-money laundering legislation in due course. These regulations are presently in draft, but they may come in force by the time a given STO/ICO is launched.
Consider also that when investor information is collected for the STO/ICO marketing effort, privacy legislation will apply. An STO/ICO launched from Ontario will at the very least trigger the Personal Information Protection and Electronic Documents Act, SC 2000, c 5.
Are there any examples of ICO/STO projects that have already complied with regulations? Do you consider their pick to be appropriate or not?
To date, there has been no ICO/STO that has been declared fully compliant with Ontario securities law by the Ontario Securities Commission.
What are the main liabilities of an STO team to the ST holders and who is in control over the fulfillment of this obligation?
To start, there are secondary market liability issues, consumer protection issues, fiduciary issues, issues in negligence, and various regulatory, criminal, and tort-based fraud issues.
Jurisdiction to prosecute largely depends on the source of legal authority contravened. Various bodies may have concurrent jurisdiction over violations arising from the same set of facts.
What are the main advantages of the STO regulations within Ontario when compared to other jurisdictions?
Presently, there are no STO-targeted regulations in force in Ontario. STO/ICO activity falls within the current securities regulatory framework.
What is the legal status of cryptocurrencies in your country?
Cryptocurrencies cannot technically be money, pursuant to Section 13(1) of the Currency Act, R.S.C., 1985, c. C-52. According to this statute, the definition of “money” includes only fiat currency.
However, Canada may be opening up to treating cryptocurrencies as a type of non-fiat currency, despite the current statutory definition of money.
To date, there has been no actual enforcement action against the use of cryptocurrency as “money” in Canada — not even against the Calgary Digital Dollar, where enforcement would be supported by long-standing precedent of the Supreme Court of Canada.
Nor has there been any significant government pursuit of taxes not charged on trades of crypto as a good, as discussed in Part 1 of the Smartblock Law “Crypto-Tax Primer” blog series.
Moreover, Elections Canada is formally inquiring into cryptocurrency contributions, which further suggests that Canada’s general climate is warming toward the use of crypto as a type of non-fiat currency.
