Vehicles continue to clog downtown streets as truckers and supporters protest COVID-19 vaccine mandates in Ottawa on Feb. 15, 2022.BLAIR GABLE/Reuters
The chief executive officer of one of Canada’s largest regulated cryptocurrency exchanges says federal emergency measures are “an overreaction” and will not prevent the self-described freedom convoy protesters from raising money by other means.
Canada’s cryptocurrency sector has been under increasing scrutiny as supporters of the protests turned to alternative forms of fundraising. The sector now faces the prospect of additional regulation after the federal government broadened the scope of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to monitor crowdfunding platforms and other payment providers.
The temporary, sweeping measures under the Emergencies Act are intended to cover all forms of transactions, including digital assets such as cryptocurrencies. Providers will be required to register with FINTRAC and report all large or suspicious transfers.
Justin Hartzman, CEO of Toronto-based CoinSmart Financial, a publicly listed cryptocurrency trading platform that received regulatory approval last year, said the federal measures go too far. “The fact is that in a democratic government, citizens are allowed to protest peacefully,” he told The Globe and Mail on Tuesday.
“They can freeze all these centralized funding platforms if they want, but there are so many more ways to raise funds in this day and age, like direct crypto transfer or NFT [non-fungible token] sales,” Mr. Hartzman added. “So, I really doubt these measures are going to be effective, as long as the fundraisers are motivated enough.”
Early last year, Canadian regulators introduced a new framework for cryptocurrency trading platforms that included requirements for those running a marketplace to surveil their participants. Additionally, the Canadian Securities Administrators determined crypto exchanges were essentially qualified as securities dealers because they facilitate trades.
This quickly put the onus on exchanges to get approval as a regulated marketplace. Toronto-based BitBuy was among the first to gain such approval, in November.
On Tuesday, Torstein Braaten, head of regulatory affairs at Bitbuy, said the federal measures “do not change what compliant Canadian crypto trading platforms are already doing today with surveillance and reporting” to FINTRAC.
He added, however, that it “may bring attention that some unregulated crypto trading platforms may be conducting business in Canada outside of the rules.”
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Erica Pimentel, a professor at Smith School of Business at Queen’s University who studies blockchains, said the regulated end of the cryptocurrency sector might fare well with the new federal measures, but smaller companies will struggle.
“What we have to consider here is, do they have any incentive to even be reporting anything to the feds?” Prof. Pimentel said. “Of course, it’s different if you’re in Canada, but even then, we’re talking about a whole lot of resources dedicated to setting up compliance and reporting arms at small, startup-level organizations. Outside Canada, though, it’s a whole different ballgame. There’s little that can be completely mandated by the government.”
Under the FINTRAC requirements, any financial transaction worth $10,000 or more will have to be reported within 24 hours. Reports about suspicious transactions, regardless of the amount, must also be included.
Prof. Pimentel said more clarity around cryptocurrencies is required from the federal government.
“They have yet to define in clear terms how exactly and what exactly needs to be reported to them,” she said. “Right now, the door has been left open for a lot of companies and individuals to continue as they are.”
Brian Mosoff, CEO of Ether Capital, a public company that provides investors with direct access to Ethereum, said the federal government’s new measures are concerning because they do not look beyond the ongoing protests. He said policymakers are pushing aside assets they don’t fully understand.
“A big part of why cryptocurrency has become a global phenomenon is because it’s based on the belief that people should have control over finances and not be governed by one centralized entity,” Mr. Mosoff said. “To exercise that level of control over individuals and how they choose to spend their money is a slippery slope. It can lead to rebellion and erosion of trust between average citizens and their government.”
Mike Silagadze, who runs Gadze Finance, which has a fund that provides liquidity to crypto exchanges, left Canada last year to run his company from the Cayman Islands.
“Will more regulations make it even less friendly to be based in Canada? That wouldn’t surprise me at all,” Mr. Silagadze said, calling it “a great example of overreach.”
“I mean, it’s pretty terrifying to imagine that the government could basically seize all your assets if you’re supporting a cause they don’t like.”
Greg Feller, president of Vancouver-based financial technology firm Mogo, said he hasn’t seen this level of regulation anywhere for the crypto sector, and is almost certain it will become permanent for those crypto companies that weren’t already registered with FINTRAC.
“It protects investors and further legitimizes the sector, as long as [the government] continues to make sure that they’re also not making it a competitive disadvantage and understanding that it is a global industry,” Mr. Feller said.
Finance Minister Chrystia Freeland told reporters that although most emergency powers announced on Monday are intended to be temporary, the government plans to make FINTRAC’s broader reach permanent. Mr. Mosoff said this worries him and others in the crypto sector.
“The cryptocurrency industry, which is still very nascent, has seen explosive growth globally over the past 24 months. Despite many Canadians not understanding the technology, these assets are going to make up an important part of a new digital-first economy a decade from now,” Mr. Mosoff said.
“By implementing reactive measures, it could take a situation from bad to worse. We have to think about where we will be as a nation 10 years from now. What policies we implement today will shape that future.”
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