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Regulators aim to rein in crypto’s Wild West

Watchdog announces new ad, marketing rules with focus on investor protection

• Toronto Star
• 24 Sep 2021
• JOSH RUBIN BUSINESS REPORTER

YURI CORTEZ AFP VIA GETTY IMAGES

The amount of money invested worldwide in cryptocurrencies, such as bitcoin, reached $2 trillion in April, more than the total value of Canadian mutual funds and exchange-traded funds, Ontario Securities Commission chair Grant Vingoe said.

Getting sick of those cryptocurrency ads that have all the grace and subtlety of carnival barkers or neon signs on the Vegas strip? So are securities regulators.

The Canadian Securities Administrators and Investment Industry Regulatory Organization of Canada (IIROC) announced new advertising, marketing and social media guidelines for cryptocurrency exchanges Thursday.

Ontario Securities Commission chair Grant Vingoe said the goal of the guidelines is simple: Keeping investors safe in a rapidly growing sector where there’s something of a Wild-West atmosphere.

“The biggest focus is investor protection,” said Vingoe.

Those “quickest one to 500 trades gets a bonus” ads or “click here and invest before the price goes up” tweets? Big no-nos. Ditto for the ones saying an exchange is the safest one around, without any proof. And above all, any advertising will have to mention the volatility and risk inherent in the entire cryptocurrency sector.

“The fact that with basically one click you can open your account and then the second click you’ve made a speculative investment, that’s concerning,” said Vingoe.

“The usage case for cryptocurrencies as payment systems has largely collapsed, and they’ve become speculative investments.”

The amount of money invested worldwide in cryptocurrencies such as bitcoin reached $2 trillion in April, more than the total value of Canadian mutual funds and exchange-traded funds, Vingoe pointed out.

“It’s fair to assume it’s grown substantially since then,” said Vingoe.

Along with the advertising guidelines, the CSA (which includes provincial and territorial regulators like the Ontario Securities Commission) and IIROC warned that cryptocurrency exchanges have to keep records of all communications with potential clients, including on social media.

The new guidelines were applauded by investors’ rights advocates, lawyers and even some cryptocurrency exchanges who are eager for more regulation to help give the rapidly growing sector more credibility.

“This is aimed at protecting retail investors. The people who invest in cryptocurrency tend to be younger, and tend to be more comfortable communicating on social media,” said Jean-Paul Bureaud, executive director of FAIR Canada, an investors’ rights advocacy group.

While making sure particular investments are suitable for a customer is something registered securities dealers must do, that rarely happens in the world of casino-style ads and tweets, Bureaud said. That’s a key problem the guidelines address, he added.

“They’re thinking more deeply about things, and getting closer to the root of the problem,” said Bureaud.

“This will get rid of some of the bad actors,” said Mitchell Demeter, president of B.C.-based Netcoins, one of the biggest cryptocurrency exchanges based in Canada. “Investment decisions should be built on education on trust, not on emotion or fear of missing out.”

Demeter said bringing in more regulations will actually be good for the cryptocurrency boom’s long-term future.

“This will help make investors more confident in the industry, and I think that’s a good thing,” said Demeter, who added that Netcoins is still planning to become a fully regulated securities dealer, under the jurisdiction of the B.C. Securities Commission.

Matthew Burgoyne, the head of the cryptocurrency practice at Calgary-based McLeod Law, said the new guidelines are a good attempt to bring some much-needed order to the sector.

But he questions whether they’ll be effective with cryptocurrency exchanges operating thousands of kilometres away from their Canadian customers, just as he wonders about the effectiveness of the OSC’s ongoing enforcement actions against offshore crypto exchanges.

“Consumers will go to the apps they prefer, if they have a more enjoyable experience. Regulators are in a difficult spot.

“They’re definitely damned if they do, damned if they don’t,” said Burgoyne.

Still, having at least some exchanges following the rules gives consumers a choice. And it’s a choice that securities regulators are hoping to make crystal clear, Vignoe said.

“When you have good players who have come in to the regulatory system, they should really be thought of as a separate category. It’s not fair to paint the entire sector with the same brush,” said Vignoe.