To serve as a warning to others, Canada’s OSC takes enforcement action against crypto exchange Poloniex

According to The Block, the Ontario Securities Commission (OSC) of Canada is taking enforcement action against Poloniex, a US-based cryptocurrency exchange operating in Canada. The Poloniex enforcement action document indicates that exchanges that have custody of customers' crypto assets will fall under the jurisdiction of securities regulations. Therefore, Canadian regulators are shifting their policies toward crypto exchanges, treating custody of customer funds as potential investment contracts, i.e. securities.

In line with this policy, OSC notified cryptocurrency exchanges in March that they must contact the regulator by April 19 to find out how to bring their business into compliance with these regulatory expectations, a representative of OSC told The Block. More than 70 exchanges have been in communication for compliance negotiations, but, so far, only one crypto asset trader has registered with the Canadian securities regulator (WealthSimple). Experts say that although OSC is unlikely to file lawsuits against all the exchanges involved, it is clear that some exchanges will completely withdraw from the Canadian market during the compliance process.

The significance of the OSC's action against Poloniex is that it shows that the OSC is not taking a hands-off approach. An OSC representative told The Block that 70 exchanges have reached out to start compliance negotiations. However, "so far, only one crypto asset trader has registered with Canadian securities regulators (WealthSimple)."

Duhaime, an industry lawyer, said, "Some exchanges don't really care because Canada is a relatively small market. Given the small size of the market, the cost of meeting Canadian regulatory requirements is much higher than the benefits. So the exchanges are currently evaluating and choosing between exiting the market and paying regulatory costs."