In June, the Ontario Securities Commission put out a press release trumpeting that the “OSC holds global crypto asset trading platforms accountable.” But that’s not really the case.
One of the two items announced was the regulator’s success in its bid to ban and fine the errant overseas cryptocurrency exchange, KuCoin. Yet neither seems to have been enforced, and probably can’t ever be.
This hollow victory of the OSC highlights the difficulties of policing the relatively borderless realm of crypto. And it raises an important question for investors: Despite the OSC ban, should you still use exchanges like KuCoin just because you can?
In 2021, after the $200-million implosion of Vancouver-founded QuadrigaCX’s platform, the OSC had started enforcing tougher rules for exchanges, requiring them to register.
KuCoin, operated by two companies registered in Seychelles and Singapore, failed to do so, leading the OSC to bring a case against it before the regulator’s independent quasi-judicial Capital Markets Tribunal. KuCoin did not respond to that case, so in June, Kucoin was fined $2-million and banned from operating in Ontario.
Yet again, KuCoin did not respond. After the decision against it by the Ontario tribunal, KuCoin outright told users in the province they could continue to use the platform.
“As for the access restriction, nothing is confirmed,” a representative posted on KuCoin’s group on the website Reddit on July 5, more than two weeks after the OSC had ruled against it. KuCoin is still freely accessible in Ontario.
Ontario Securities Commission says it’s looking into cryptocurrency exchange Quadriga
How the crypto crash exposed the sector’s lies – and left retail investors in the lurch
The OSC declined to comment. KuCoin did not respond to a request for comment.
Adam Chisholm, a partner at McMillan LLP and one of the firm’s crypto experts, said KuCoin has likely gotten its own legal advice on the impact of the OSC sanctions.
“That is typically why a foreign company will not bother with Ontario (or Canadian proceedings),” Mr. Chisholm said. “It will usually have some comfort in that an order made here will not be enforceable against it where it matters to them.”
Mr. Chisholm said OSC sanctions could have secondary impacts on KuCoin, affecting whether banks would want to work with it or any plans at doing a public offering. “It could also raise regulatory attention against them in other jurisdictions, as regulators generally want entities to be compliant wherever they operate,” Mr. Chisholm said.
If that is happening, though, those regulators aren’t saying. The financial regulators in Seychelles and Singapore did not respond to a request for comment.
Binance, a Cayman Islands-registered exchange that has had run-ins with the OSC, has long done only crypto-to-crypto trades and in the early days had reportedly operated with no bank account. KuCoin likely thinks that it will be just fine being so brazen.
For investors, this situation with KuCoin may bring to mind Binance’s issues with the OSC, which are quite similar.
Binance, though, the world’s biggest crypto exchange, has taken a different tack from KuCoin. After its run-ins with the OSC, it gave an undertaking to bar Ontarians until it became properly registered. But the Binance exchange can still be accessed by anyone in Ontario with a VPN (virtual private network), a relatively simple tool.
So should you continue to use Binance or KuCoin? The enactment of these bans, after all, are between the OSC and the exchanges, not the users.
Mr. Chisolm said that platforms not operating with the permission of the OSC might not have the necessary safeguards for investors that the regulator requires.
In the case of using a VPN, people doing that violate the platforms’ terms of service and could face problems with withdrawal of assets, Mr. Chisolm said. “Those individuals certainly won’t be able to complain to Ontario regulators if faced with these issues and will have to resolve those problems on their own.”
If you have already used such platforms, though, there might be some good news.
In June, Binance was hit with a proposed class-action lawsuit accusing the platform of illegally offering certain complex trades – that is, without complying with the rules of regulators like the OSC.
Whether you gained or lost money, if you had made certain trades on Binance since Sept. 13, 2019, you’re automatically included as a plaintiff in most cases.
More often than not, such lawsuits never go to trial and end with a settlement for the plaintiffs.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.