- New rules bring stricter standards for CTPs to store and protect customers’ crypto assets.
- Custodians are sorted based on financial strength, insurance, management, and stability.
- A platform itself is only allowed to directly hold up to 20% of its clients’ crypto.
Canadian Investment Regulatory Organization (CIRO), Canada’s self-regulatory body for investment dealers and trading platforms, has issued new custody rules for crypto platforms it oversees. The framework sets stricter standards for how crypto asset trading platforms (CTPs) must store and protect customers’ cryptocurrency assets.
The guidance took effect on February 3rd. It’s intended to better protect investors and reduce the risk of assets being lost or stolen. In other words, to prevent the kind of failures that have happened with crypto platforms in Canada before.
The new rules sort crypto custodians into four levels (Tiers 1-4) based on their financial strength, insurance, management, and stability. Each level has a limit on how much client crypto they can hold, from 100% for the top tiers down to 40% for the lowest. To limit risk, a platform itself is only allowed to directly hold up to 20% of its clients’ crypto.
This encourages platforms to use professional, regulated custodians to hold assets, reducing the dangers that come from storing them in-house or with loosely managed providers.
Investor Protection
The framework also imposes independent audits and mandatory insurance for assets held by custodians or platforms. Also, it requires strict internal rules for managing access keys, keeping customer funds separate, having a plan for security breaches, and conducting regular security checks.
Platforms must also have clear legal contracts stating who is responsible if assets are lost through carelessness or a security failure.
These rules help make holding crypto as safe as holding traditional money, while also dealing with special risks like losing your private keys or getting hacked.
CIRO stressed that the way crypto is stored is one of the biggest risks. New rules aim to let crypto platforms run their businesses and develop new ideas, but only if they also protect their customers’ funds properly.
Canada has been steadily tightening its rules for crypto. Before this announcement, the country implemented new transaction reporting and tax compliance regimes under federal initiatives.
It also developed rules for stablecoins and global reporting, and pushed crypto companies to become fully regulated members of the investment industry’s main self-regulatory body, CIRO.
Related: Canada’s Approach to Stablecoins Explained: Safety First, Innovation Second
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