• Misleading Advertising from Crypto Exchanges Targeted by Canadian Securities Regulators

  • Authorities have issued warnings to Canadian Crypto Trading Platforms, alleging that their marketing practices may violate securities laws.

    The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) recently issued a staff notice addressing improper marketing practices by Canadian Crypto Trading Platforms (CTPs) and providing clarity on what rules to follow.

    Cleaning Up CTP Promotions

    The notice from the regulators was published earlier this week on the OSC’s website. It starts by expressing their concerns about “certain advertising activities and marketing strategies employed by platforms that trade crypto assets,” emphasizing that these practices may violate securities legislation requirements and raise public interest concerns. The platforms of concern were not identified.

    It then goes on to discuss some of the regulators’ concerns about “gambling-style” promotions and schemes that these CTPs are alleged to have engaged in:

    “We have recently observed some CTPs using advertising or marketing strategies such as contests, promotions, bonuses, and time limits to encourage investors to trade and act quickly for fear of missing out on an investment opportunity or a reward.”

    According to the CSA and IIROC, such promotions may encourage investors to make more risky investment decisions than they would in a non-time-sensitive environment. As a result, this activity may “violate the registrant’s obligation to treat clients fairly, honestly, and in good faith.”

    The notice concludes with a list of examples of CTP claims that would violate Canadian securities laws and why. These include statements such as “We are your cheapest and best source for Bitcoin,” if the platform is unable to back up such a claim with hard evidence.

    Many others are presented as well, such as those involving a specific individual’s promotion or the use of the words “exchange” or “marketplace” to describe their platform.

    Canada’s Regulatory Clarity

    Though it may appear to be a burden, the document demonstrates remarkable clarity from Canadian regulators regarding the changes they would like to see from Crypto Trading Platforms in the country. It even includes a list of CSA and IIROC staff members who CTPs can contact if they have any further questions.

    In contrast, regulatory clarity has been difficult to obtain for exchanges in the United States. According to Brian Armstrong, CEO of Coinbase, US watchdogs are not interested in clarity, instead engaging in “intimidation tactics behind closed doors.”

    Similarly, the SEC has been slow to implement a Bitcoin ETF in comparison to Canada, though chairman Gensler has expressed openness to a future ETF.

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