Dec. 13, 2021
Professor published in Banking and Finance Law Review
Ryan's article, "Emerging Canadian Crypto-Asset Jurisdictional Uncertainties and Regulatory Gaps," has been published in (2021) 37 Banking and Finance Law Review 25.
Canadian securities regulators recently advanced a novel jurisdictional claim over crypto asset trading platforms (CTPs) that trade Bitcoin and other decentralized commodity crypto assets (DCAs) which are not securities or derivatives on their own. The regulator asserted that a platform user’s ‘‘contractual right” to delayed delivery of a DCA creates either a security or a derivative — a position that no other international securities regulator has yet taken. This jurisdictional claim is a positive development in the evolution of crypto asset regulation in Canada, but it is also incomplete. Third-party intermediaries, and custodial services, are a centralized point of risk transmission and investor transaction volume. As such, the regulator’s measures will bring certainty, stability, and credibility to a historically vulnerable segment of an industry surging in investor interest. Nevertheless, jurisdictional uncertainties, regulatory gaps and standards deficits remain in crypto assets, which could lead to investor harm and financial system instability.
This article illustrates numerous crypto regulatory uncertainties including intermediated blockchain proof of stake (POS) validation rewards (crypto staking); decentralized finance (DeFi) passive income ‘‘yield farming” and nonfungible tokens (NFTs). Also, user controlled DCA and stablecoin wallets, and non-custodial DCA investment advice are currently unregulated with no standards, certifications, or safeguards. Nascent DeFi applications like peer-to-peer exchanges, lending protocols, smart contract-based prediction and derivatives markets, synthetic investments and lotteries also currently operate outside of meaningful supervision or standards, and in many cases without an intermediary due to automated smart contracts on a decentralized programmable blockchain. Ultimately, a legislative solution which brings DeFi under the supervision of the securities regulator for applications that resemble capital markets regulated products and services, aligned with consistent international standards and coordination with other financial market agencies, is necessary to fully support innovation in crypto assets while ensuring financial system stability and investor protection.