Conclusion

Whether they were aware of it or not, Quadriga’s clients were exposed to risks beyond fluctuations in crypto asset prices when they chose to trade on the Quadriga platform. Quadriga held and controlled their assets and misled them about the way those assets were being handled. Quadriga was not registered with any securities regulator. Cotten took advantage of this situation, treating his clients’ assets as corporate or personal funds that he could spend, trade and use at will and ultimately depleting those assets to such an extent that he brought down the entire platform.

We remain committed to working with the industry to foster innovation.

What happened with Quadriga was an extreme example, and not necessarily representative of the broader crypto asset trading platform industry. However, these events serve to highlight for investors the risks that can arise in relation to crypto asset trading platforms, particularly those that are not registered. While we caution investors about these risks, we remain committed to working with the industry to foster innovation. Financial innovation is central to our capital markets and investors must have confidence to take advantage of new and exciting opportunities.

The worldwide regulatory response to this emerging sector has been developing and continues to develop. The CSA has recently provided guidance on when securities regulation applies to crypto asset trading platforms, in the form of the Staff Notice. The CSA and IIROC have recently published a discussion of potential risks associated with these platforms, in the form of the Consultation Paper. The OSC encourages platform operators to review the Staff Notice and Consultation Paper and to consult with their legal counsel on the application of securities legislation to their businesses. We also remind platform operators that their activities may currently be subject to securities regulation, and they should contact OSC staff to discuss the appropriate steps to be taken to comply with the applicable requirements. Our findings and insights from this report will help guide regulatory policy and development that will further our statutory mandate.

We encourage all Canadian crypto asset platform clients to review the Staff Notice and the Consultation Paper. We also encourage anyone considering entrusting their money to a crypto asset trading platform to conduct their due diligence before proceeding.