IN THE MATTER OF THE SECURITIES LEGISLATION OF

ONTARIO (the Jurisdiction) AND ALBERTA, BRITISH COLUMBIA,

MANITOBA, NEW BRUNSWICK, NEWFOUNDLAND AND LABRADOR, 

NORTHWEST TERRITORIES, NOVA SCOTIA, NUNAVUT, PRINCE EDWARD ISLAND, 

QUÉBEC, SASKATCHEWAN AND YUKON

 

AND

 

IN THE MATTER OF 

THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS 

IN MULTIPLE JURISDICTIONS

 

AND

 

IN THE MATTER OF 

WEALTHSIMPLE DIGITAL ASSETS INC. 

(the Filer)

 

DECISION

 

Background

 

As set out in CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets (Staff Notice 21-327) and CSA Staff Notice 21-329 Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements (Staff Notice 21-329), securities legislation applies to crypto asset trading platforms (CTPs) that facilitate or propose to facilitate the trading of instruments or contracts involving crypto assets because the user’s contractual right to the crypto asset may itself constitute a security and/or a derivative (Crypto Contract).

 

To foster innovation and respond to novel circumstances, the Canadian Securities Administrators (CSA) have considered an interim, time-limited registration that would allow CTPs to operate within a regulated environment, with regulatory requirements tailored to the CTPs’ operations. The overall goal of the regulatory framework is to ensure there is a balance between the need to be flexible and to facilitate innovation in the Canadian capital markets, while upholding the regulatory mandate of promoting investor protection and fair and efficient capital markets.

 

The Filer is currently registered in the category of restricted dealer in all provinces. In connection with its registration as a restricted dealer, the Filer previously applied for and received exemptive relief in decisions dated August 7, 2020 and June 18, 2021 on terms substantially similar to this Decision. The Filer’s registration is also currently subject to additional terms and conditions in relation to the Filer’s provision of staking services.

 

Under the terms and conditions of the decision In the Matter of Wealthsimple Digital Assets Inc. dated June 18, 2021 (the Prior Decision) and the terms and conditions imposed on its registration, the Filer has operated, and continues to operate, on an interim basis, a platform (the Platform) that permits clients resident in Canada to enter into Crypto Contracts to purchase, hold, stake, sell, deposit and withdraw crypto assets.

 

The Filer wishes to ultimately carry on these activities through its affiliated entity, Wealthsimple Investments Inc. (WSII), which is registered as an investment dealer and a member of the Canadian Investment Regulatory Organization, formerly the Investment Industry Regulatory Organization of Canada (CIRO).

 

The exemptive relief granted under the Prior Decision expired on June 18, 2023.

 

The Filer has submitted an application to extend its existing exemptive relief in order to continue to operate the Platform on an interim basis until the activities of the Filer are transitioned to WSII, and to incorporate the terms and conditions related to the Filer’s provision of staking services into the Decision.

 

This decision (Decision) has been tailored for the specific facts and circumstances of the Filer, and the securities regulatory authority or regulator in the Applicable Jurisdictions (as defined below) will not consider this Decision as constituting a precedent for other filers.

 

Relief Requested

 

The securities regulatory authority or regulator in the Jurisdiction has received an application from the Filer (the Passport Application) for a decision under the securities legislation of the Jurisdiction (the Legislation) extending the time-limited exemption of the Filer from:

 

a)    the prospectus requirements under the Legislation in respect of the Filer entering into Crypto Contracts with clients to purchase, hold, sell, deposit, withdraw and stake Crypto Assets (as defined below) (the Prospectus Relief); and

 

b)    the requirement in section 13.3 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), before it opens an account, takes investment action for a client or makes a recommendation or exercises discretion to take investment action, to determine on a reasonable basis that the action is suitable for the client (the Suitability Relief).

 

The securities regulatory authority or regulator in the Jurisdiction and each of the other jurisdictions referred to in Appendix A (collectively, the Coordinated Review Decision Makers) have received an application from the Filer (collectively with the Passport Application, the Application) for a decision under the securities legislation of those jurisdictions exempting the Filer from certain reporting requirements under the Local Trade Reporting Rules (as defined in Appendix A) (the Trade Reporting Relief, and together with the Prospectus Relief and the Suitability Relief, the Requested Relief).

 

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a hybrid application):

 

(a)        the Ontario Securities Commission is the principal regulator for the Application (the Principal Regulator),

 

(b)        in respect of the Prospectus Relief and the Suitability Relief, the Filer has provided notice that, in the jurisdictions where required, subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada (the Non-Principal Jurisdictions, and, together with the Jurisdiction, the Applicable Jurisdictions), and

 

(c)        the decision in respect of the Trade Reporting Relief is the decision of the Principal Regulator and evidences the decision of each Coordinated Review Decision Maker. 

 

Interpretation

 

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and Canadian securities legislation have the same meaning if used in this Decision, unless otherwise defined.

 

For the purposes of this Decision, the following terms have the following meaning:

 

(a)     “Act” means the Securities Act (Ontario).

 

(b)     “Acceptable Third-party Custodian” means an entity that:

 

                    (i)        is one of the following:

1.    a Canadian custodian or Canadian financial institution, as those terms are defined in NI 31-103;

2.    a custodian qualified to act as a custodian or sub-custodian for assets held in Canada pursuant to section 6.2 [Entities Qualified to Act as Custodian or Sub-Custodian for Assets Held in Canada] of National Instrument 81-102 Investment Funds;

3.    a custodian that meets the definition of an “acceptable securities location” in accordance with the Investment Dealer and Partially Consolidated Rules and Form 1 of CIRO;

4.    a foreign custodian (as defined in NI 31-103) for which the Filer has obtained the prior written consent from the Principal Regulator and the regulator or securities regulatory authority of the Applicable Jurisdiction(s); or

5.    an entity that does not meet the criteria for a qualified custodian (as defined in NI 31-103) and for which the Filer has obtained the prior written consent from the Principal Regulator and the regulator or securities regulatory authority of the Applicable Jurisdiction(s);

 

                  (ii)        is functionally independent of the Filer within the meaning of NI 31-103;

 

                 (iii)        has obtained audited financial statements within the last twelve months which

1.    are audited by a person or company that is authorized to sign an auditor’s report under the laws of a jurisdiction of Canada or a foreign jurisdiction and that meets the professional standards of that jurisdiction;

2.    are accompanied by an auditor’s report that expresses an unqualified opinion, and

3.    unless otherwise agreed to by the Principal Regulator, discloses on their statement of financial position or in the notes of the audited financial statements the amount of liabilities that it owes to its clients for holding their assets, and the amount of assets held by the custodian to meet its obligations to those custody clients, broken down by asset; and

 

                 (iv)        has obtained a Systems and Organization Controls (SOC) 2 Type 1 or SOC 2 Type 2 report within the last twelve months or has obtained a comparable report recognized by a similar accreditation board satisfactory to the Principal Regulator and the regulator or securities regulatory authority of the Applicable Jurisdiction(s);

 

(c)     “Apps” means iOS and Android applications that provide access to the Platform.

 

(d)     “IOSCO” means the International Organization of Securities Commissions.

 

(e)     “Promoter” has the meaning ascribed to that term in Canadian securities legislation.

 

(f)      “Proprietary Token” means a Crypto Asset that is not a Value-Referenced Crypto Asset, and for which the Filer or an affiliate of the Filer acted as the issuer (and mints or burns the Crypto Asset) or a promoter.

 

(g)     “Specified Crypto Asset” means the Crypto Assets listed in Appendix B to this Decision.

 

(h)     “Specified Foreign Jurisdiction” means any of the following: Australia, Brazil, any member country of the European Union, Hong Kong, Japan, the Republic of Korea, New Zealand, Singapore, Switzerland, the United Kingdom of Great Britain and Northern Ireland and the United States of America.

 

(i)       “Staking” means the act of committing or locking Crypto Assets in smart contracts to permit the owner or the owner’s agent to act as a Validator for a particular proof-of-stake consensus algorithm blockchain.

 

(j)       “Validator” means, in connection with a particular proof of stake consensus algorithm blockchain, an entity that operates one or more nodes that meet protocol requirements for a Crypto Asset and participates in consensus by broadcasting votes and committing new blocks to the blockchain.

 

(k)     “Value-Referenced Crypto Asset” means a Crypto Asset that is designed to maintain a stable value over time by referencing the value of a fiat currency or other value or right, or combination thereof.

 

(l)       “Website” means the website www.wealthsimple.com or such other website as may be used to host the Platform from time to time.

 

Representations

 

This decision (the Decision) is based on the following facts represented by the Filer:

 

 

 

The Filer

 

1.          The Filer is a corporation incorporated under the federal laws of Canada with its principal office in Toronto, Ontario. 

 

2.          The Filer is a wholly owned subsidiary of Wealthsimple Financial Corp. (WFC), a holding company that owns 100% of the issued and outstanding securities of several operating companies that are registered under applicable securities legislation in each of the provinces and territories of Canada, including Wealthsimple Inc., a registered adviser in the category of portfolio manager, and WSII, formerly Canadian ShareOwner Investments Inc., a registered dealer in the category of investment dealer and member of CIRO.

 

3.          The Filer does not have any securities listed or quoted on an exchange or marketplace in any jurisdiction inside or outside of Canada. However, a majority of the voting securities of WFC are controlled by subsidiaries and entities affiliated with Power Corporation of Canada. Power Corporation of Canada is a reporting issuer under the legislation of the Applicable Jurisdictions and its securities are listed for trading on the Toronto Stock Exchange.

 

4.          The Filer is registered as a dealer in the category of restricted dealer with the Applicable Jurisdictions.

 

5.          The Filer’s books and records, financial controls and compliance systems (including its policies and procedures) are designed to closely resemble in all material respects, except as necessary to address operational differences, those in place today at WSII.

 

6.          The Filer is registered as a money services business under regulations made under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada).

 

7.          The Filer’s personnel consists, and will consist, of software engineers, compliance professionals and finance professionals who each have experience operating in a regulated financial services environment and expertise in blockchain technology. All of the Filer’s personnel have passed and new personnel will have passed criminal records and credit checks. The Filer does not have any dealing representatives.

 

8.          Subject to the Decision requested prior to the expiry of the Prior Decision, the Filer is not in default of securities legislation of any jurisdictions of Canada.

 

9.          The Filer and WSII would like the Platform to be transitioned to and operated by WSII.

 

10.       The Filer and WSII have been actively and diligently working with CIRO to transition the operation of the Platform from the Filer to WSII, including:

 

(a)       analyzing the CIRO Rules to identify areas where exemptive relief from CIRO Rules may be required in light of the Platform and the Filer’s activities;

 

(b)       preparing multiple detailed documentary packages comprehensively describing the Platform, how WSII will comply with CIRO Rules and where exemptive relief may be required;

 

(c)        preparing responses to written requests for information received from CIRO Staff;

 

(d)       preparing and presenting on the Platform at numerous meetings with CIRO Staff;

 

(e)       preparing draft exemptive relief applications, where such relief may be required from CIRO;

 

(f)         updating policies and procedures to reflect the CIRO’s requirements;

 

(g)       planning and implementing of changes to WSII’s accounting ledger to accommodate crypto asset trading in accordance with the CIRO’s requirements; and

 

(h)       developing a structure for the legal transaction by which the Platform operated by the Filer will be transitioned to WSII.

 

11.       Since June 2021, the Filer has engaged numerous additional legal, compliance, trading, anti-money laundering, operational and financial personnel to support the Platform and the transition efforts.

 

12.       The transition efforts have also involved senior operational, legal, trading and financial personnel from WSII, and members of broader product, engineering, security, finance, operations, fraud, communications, compliance and legal teams from the Wealthsimple group of companies have supported the transition efforts, in addition to other responsibilities.

 

13.       The Filer requires additional time to complete the transition of the Platform to WSII. The Filer anticipates the following key steps will need to be taken:

 

(a)       responding to any further requests for information from CIRO;

 

(b)       completing work necessary for WSII’s accounting ledger to consume and reflect activity in Crypto Assets;

 

(c)        completing the integration of an order management system into the Crypto Asset trading workflow;

 

(d)       submitting applications for exemptive relief to the CIRO and addressing any comments on those applications;

 

(e)       submitting an application from WSII for exemptive relief from the prospectus and trade reporting requirements;

 

(f)         receiving CIRO approval of the amalgamation of WSII and the Filer; and

 

(g)       completing the amalgamation of the Filer and WSII, including providing notice to the Filer’s key stakeholders, including clients, custodians and liquidity providers.

 

14.       The Filer and WSII will continue to work actively and diligently with CIRO to transition the operation of the Platform from the Filer to WSII and under the oversight of CIRO.

 

Wealthsimple Crypto

 

15.       The Filer operates under the business name of “Wealthsimple Crypto”. The Filer was established to operate, on an interim basis, the Platform, which enables clients to buy, sell, hold, deposit, withdraw and stake crypto assets such as Bitcoin, Ether, and anything commonly considered a crypto asset, digital or virtual currency, or digital or virtual token (each a Crypto Asset, collectively the Crypto Assets) through the Filer.

 

16.       To use the Platform, each client must open an account (Client Account) using the Website or Apps. Client Accounts are governed by a user agreement (Client Account Agreement) that is accepted by clients at the time of account opening. The Client Account Agreement governs all activities in Client Accounts, including with respect to all Crypto Assets purchased on, or transferred to, the Platform (Client Assets). While clients are entitled to transfer certain Client Assets out of their Client Accounts immediately after purchase, clients may choose to leave their Client Assets in their Client Accounts.

 

17.       The Filer’s role under the Crypto Contract is to facilitate the buying, selling, and staking of Crypto Assets and to provide custodial services for all Crypto Assets held in Client Accounts.

 

18.       The Filer’s trading of Crypto Contracts is consistent with activities described in Staff Notice 21-327 and constitutes the trading of securities and/or derivatives.

 

19.       The Filer may buy, sell, borrow or hold Crypto Assets in its inventory for operational purposes, such as payment of network/transaction fees required to transfer Crypto Assets and testing. Otherwise, the Filer does not and will not hold any proprietary positions in Crypto Assets for itself and it does not take a long or short position in a Crypto Asset with any party, including clients.

 

20.       The Filer does not have any authority to act on a discretionary basis on behalf of clients and will not offer or provide discretionary investment management services relating to Crypto Assets.

 

21.       The Filer is not a member firm of the Canadian Investor Protection Fund (CIPF) and the Crypto Assets custodied do not qualify for CIPF coverage.

 

22.       The Risk Statement (defined below) includes disclosure that there is no CIPF coverage for the Crypto Assets and clients must acknowledge that they have received, read and understood the Risk Statement before opening an account with the Filer.

 

Crypto Assets Made Available through the Platform

 

23.       The Filer has established and applies policies and procedures to review Crypto Assets and to determine whether to allow clients on its Platform to enter into Crypto Contracts to buy, sell, stake or hold the Crypto Assets on its Platform in accordance with the know-your-product (KYP) provisions of NI 31-103 (KYP Policy). Such review includes, but is not limited to, publicly available information concerning:

 

(a)       the creation, governance, usage and design of the Crypto Asset, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that created the Crypto Asset; 

 

(b)       the supply, demand, maturity, utility and liquidity of the Crypto Asset;

 

(c)        material technical risks associated with the Crypto Asset, including any code defects, security breaches and other threats concerning the Crypto Asset and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and

 

(d)       legal and regulatory risks associated with the Crypto Asset, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of the Crypto Asset.

 

24.       The Filer only offers and only allows clients to enter into Crypto Contracts to buy, sell, stake, and hold Crypto Assets that are not each themselves a security and/or a derivative. The Filer allows clients to enter into Crypto Contracts in respect of certain Value-Referenced Crypto Assets. In light of the guidance in CSA Staff Notice 21-332 Crypto Asset Trading Platforms: Pre-Registration Undertakings – Changes to Enhance Canadian Investor Protection, the Filer is engaged in discussions with CSA Staff about continuing to allow clients to enter into Crypto Contracts in respect of certain Value-Referenced Crypto Assets. 

 

25.       The Filer does not allow clients to enter into a Crypto Contract to buy and sell Crypto Assets unless the Filer has taken steps to

 

(a)       assess the relevant aspects of the Crypto Assets pursuant to the KYP Policy and as described in paragraph 23 to determine whether it is appropriate for its clients;

 

(b)       approve the Crypto Asset, and Crypto Contracts to buy and sell such Crypto Asset, to be made available to clients, and

 

(c)        monitor the Crypto Asset for significant changes and review its approval under (b) where a significant change occurs.

 

26.       The Filer is not engaged, and will not engage, in trades that are part of, or designed to facilitate, the creation, issuance or distribution of Crypto Assets by the developer(s) of the Crypto Asset, its issuers or affiliates or associates of such persons.

 

27.       As set out in the KYP Policy, the Filer determines whether a Crypto Asset available to be bought or sold through a Crypto Contract is a security and/or derivative and is being offered in compliance with securities and derivatives laws, which include but are not limited to:

 

(a)       consideration of statements made by any regulators or securities regulatory authorities of the Applicable Jurisdictions, other regulators in IOSCO-member jurisdictions, or the regulator with the most significant connection to a Crypto Asset about whether the Crypto Asset, or generally about whether the type of Crypto Asset, is a security and/or derivative; and

 

(b)       if the Filer determines it to be necessary, obtaining legal advice as to whether the Crypto Asset is a security and/or derivative under securities legislation of the Applicable Jurisdictions.

 

28.       The Filer monitors ongoing developments related to the Crypto Assets available on its Platform that may cause a Crypto Asset’s status as a security and/or derivative or the assessment conducted by the Filer pursuant to its KYP Policy and as described in paragraphs 23 to 27 to change.

 

29.       The Filer acknowledges that any determination made by the Filer as set out in paragraphs 23 to 27 of this Decision does not prejudice the ability of any of the regulators or securities regulatory authorities of any province or territory of Canada to determine that a Crypto Asset that a client may enter into a Crypto Contract to buy and sell is a security and/or derivative.

 

30.       The Filer has established and applies policies and procedures to promptly stop the trading of any Crypto Asset available on its Platform and to allow clients to liquidate in an orderly manner their positions in Crypto Contracts with underlying Crypto Assets that the Filer ceases to make available on its Platform.

 

Account Opening

 

31.       The Platform is available to any individual who is resident in Canada, who has reached the age of majority in the jurisdiction in which they are resident, and who has the legal capacity to open a securities brokerage account.

 

32.       Clients of the Filer open a Client Account using the Apps or Website, which are owned by Wealthsimple Technologies Inc., a wholly-owned subsidiary of WFC. Clients use their Client Accounts to trade in Crypto Contracts. The Apps and Website clearly indicate that the Platform is operated by the Filer.

 

33.       Clients also use the Apps or Website to open accounts with WSII. Clients’ cash is held in these accounts with WSII. WSII does not take orders from clients to buy or sell Crypto Assets. WSII’s role is limited to processing debits and credits into and out of a client’s cash brokerage account, based on instructions received from a client or from the Filer acting with the client’s authorization. Clients’ cash is only sent from their account with WSII to the Filer and from the Filer to their account with WSII, unless the client wishes to withdraw their cash from WSII.

 

34.       The Filer does not provide recommendations or advice to clients or conduct a trade-by-trade suitability determination for clients, but rather performs account appropriateness assessments and applies Client Limits (as defined below).

 

35.       As part of the account opening process:

 

(a)       The Filer complies with the applicable “know your client” account opening requirements under applicable legislation and under Canadian anti-money laundering and anti-terrorist financing laws by collecting know-your-client (KYC) information which satisfies the identity verification requirements applicable to reporting entities.

 

(b)       The Filer assesses “account appropriateness.” Specifically, prior to opening a Client Account, the Filer uses electronic questionnaires to collect information that the Filer will use to determine whether it is appropriate for a prospective client to enter into Crypto Contracts with the Filer to buy, sell and/or stake Crypto Assets. The account appropriateness assessment conducted by the Filer considers the following factors:

 

                                            (i)        the client’s experience and knowledge in investing in Crypto Assets;

 

                                           (ii)        the client’s experience in using order execution only online brokerages;

 

                                          (iii)        the client’s financial assets and income; 

 

                                          (iv)        the client’s risk tolerance; and

 

                                           (v)        the Crypto Assets approved to be made available to a client on the Platform. 

 

(c)        After completion of the account appropriateness assessment, a prospective client receives appropriate messaging about using the Platform to enter into Crypto Contracts, which, in circumstances where the Filer has evaluated that entering into Crypto Contracts with the Filer is not appropriate for the client, will include prominent messaging to the client that this is the case and that the client will not be permitted to open a Client Account.

 

(d)       The Filer has adopted and applies policies and procedures to conduct an assessment to establish appropriate limits on the losses that a client can incur, what limits will apply to such client based on the information collected in paragraph (b) above (Client Limit), and what steps the Filer will take when the client approaches or exceeds their Client Limit. After completion of the assessment, the Filer will implement controls to monitor and apply the Client Limit.

 

(e)       The Filer provides a prospective client with a separate statement of risk (the Risk Statement) that clearly explains the following in plain language:

 

                                            (i)        the Crypto Contracts;

 

                                           (ii)        the risks associated with the Crypto Contracts;

 

                                          (iii)        a prominent statement that no securities regulatory authority or regulator in Canada has assessed or endorsed the Crypto Contracts or the Crypto Assets made available through the Platform;

 

                                          (iv)        the due diligence performed by the Filer before making a Crypto Asset available through the Platform, including the due diligence performed by the Filer to assess whether the Crypto Asset is a security and/or derivative under the securities and derivatives legislation of each of the jurisdictions of Canada and the securities and derivatives laws of the foreign jurisdiction with which the Crypto Asset has the most significant connection, and the risks if the Filer has incorrectly determined that the Crypto Asset is not a security and/or derivative;

 

                                           (v)        that the Filer has prepared a plain language description of each Crypto Asset and of the risks of the Crypto Asset made available through the Platform, with instructions as to where on the Platform the client may obtain the descriptions (each, a Crypto Asset Statement);

 

                                          (vi)        the Filer’s policies for halting, suspending and withdrawing a Crypto Asset from trading on the Platform, including criteria that would be considered by the Filer, options available to clients holding such a Crypto Asset, any notification periods and any risks to clients;

 

                                        (vii)        the location and the manner in which Crypto Assets are held for the client, and the risks and benefits to the client of the Crypto Assets being held in that location and in that manner, including the impact of insolvency of the Filer or the Acceptable Third-party Custodian;

 

                                       (viii)        the manner in which the Crypto Assets are accessible by the Filer, and the risks and benefits to the client arising from the Filer having access to the Crypto Assets in that manner;

 

                                          (ix)        that the Filer is not a member of CIPF and the Crypto Assets held by the Filer (directly or indirectly through third parties) will not qualify for CIPF protection;

 

                                           (x)        a statement that the statutory rights in section 130.1 of the Act, and, if applicable, similar statutory rights under securities legislation of other Applicable Jurisdictions, do not apply in respect of the Risk Statement or a Crypto Asset Statement to the extent a Crypto Contract is distributed under the Prospectus Relief in this Decision; and

 

                                          (xi)        the date on which the information was last updated.

 

36.       In order for a prospective client to open and operate a Client Account with the Filer, the Filer obtains an electronic acknowledgement from the prospective client confirming that the prospective client has received, read and understood the Risk Statement. Such acknowledgement will be prominent and separate from other acknowledgements provided by the prospective client as part of the account opening process.

 

37.       A copy of the Risk Statement acknowledged by a client is made available to the client in the same place as the client’s other statements on the Platform. 

 

38.       The Filer applies policies and procedures for updating the Risk Statement and each Crypto Asset Statement to reflect any material changes to the disclosure or include any material risks that may develop with respect to the Crypto Contracts, crypto assets generally, or a specific Crypto Asset, as the case may be. In the event the Risk Statement is updated, existing clients of the Filer will be promptly notified of the update and provided with a copy of the updated Risk Statement. In the event a Crypto Asset Statement is updated, existing clients of the Filer will be promptly notified, with links to the updated Crypto Asset Statement.  

 

39.       Before a client enters into a Crypto Contract to buy a Crypto Asset, the Filer provides instructions for the client to read the Crypto Asset Statement for the Crypto Asset, which will include a link to the Crypto Asset Statement on the Website or Apps.

 

40.       Each Crypto Asset Statement includes:

 

(a)       a prominent statement that no securities regulatory authority or regulator in Canada has assessed or endorsed the Crypto Contracts or any Crypto Assets made available through the Platform,

 

(b)       a description of the Crypto Asset, including the background of the developer(s) that created the Crypto Asset, if applicable,

 

(c)        a description of the due diligence performed by the Filer with respect to the Crypto Asset,

 

(d)       any risks specific to the Crypto Asset,

 

(e)       a direction to the client to review the Risk Statement for additional discussion of general risks associated with the Crypto Contracts and the Crypto Assets made available through the Platform,

 

(f)         a statement that the statutory rights in section 130.1 of the Act, and, if applicable, similar statutory rights under securities legislation of other Applicable Jurisdictions, do not apply in respect of the Crypto Asset Statement to the extent a Crypto Contract is distributed under the Prospectus Relief in this Decision, and

 

(g)       the date on which the information was last updated.

 

41.       The Filer monitors Client Accounts after opening to identify activity inconsistent with the client’s account, the account appropriateness assessment, and Crypto Asset assessment. If warranted, the client may receive further messaging about the Platform and the Crypto Assets, specific risk warnings and/or receive direct outreach from the Filer about their activity. The Filer monitors compliance with the Client Limits established in paragraph 35(d). If warranted, the client will receive warnings when their Client Account is approaching its Client Limit, which will include information on steps the client may take to prevent the client from incurring further losses.

 

42.       The Filer also prepares and makes available to its clients educational materials and other informational updates about trading on the Platform and the ongoing development of Crypto Assets and Crypto Asset trading markets. To do so, the Filer builds upon the existing communication channels and techniques used by affiliates in the WFC group of companies.

 

Platform Operations

 

43.       All Crypto Contracts entered into by clients to buy and sell Crypto Assets are placed with the Filer through the Apps or Website.

 

44.       Clients are able to submit orders, either in units of the applicable Crypto Asset or in fiat currency, 24 hours a day, 7 days a week. Clients are able to deposit and withdraw certain Crypto Assets and Canadian dollars, 24 hours a day, 7 days a week (or where applicable, for fiat currency during banking hours).

 

45.       The Filer establishes, maintains and ensures compliance with policies and procedures that identify and manage conflicts of interest arising from the operation of the Platform and its related services, including conflicts between the interests of its owners, its commercial interests and the responsibilities and sound functioning of the Platform and related services.

 

46.       The Filer relies upon multiple crypto asset trading firms (Liquidity Providers) to act as sellers of Crypto Assets that may be purchased by clients. Liquidity Providers also buy any Crypto Assets that clients wish to sell.

 

47.       The Filer evaluates the prices obtained from its Liquidity Providers on an ongoing basis against global benchmarks to provide fair and reasonable pricing to its clients.

 

48.       The Filer has taken or will take reasonable steps to verify that each Liquidity Provider is appropriately registered and/or licensed to trade in the Crypto Assets in their home jurisdiction, or that their activities do not require registration in their home jurisdiction, and that they are not in default of securities legislation in the Applicable Jurisdictions.

 

49.       The Filer has verified that each Liquidity Provider has effective policies and procedures to address concerns relating to fair price, fraud and market manipulation. 

 

50.       A Crypto Contract is a bilateral contract between the client and the Filer. Accordingly, the Filer is the counterparty to all trades entered by the client on the Platform. For each client transaction, the Filer will be a counterparty to a corresponding Crypto Asset buy or sell transaction with a Liquidity Provider. For each buy or sell transaction initiated by a client, the Filer buys or sells Crypto Assets with Liquidity Providers.

 

51.       After an order has been placed by a client, the Filer obtains a price for the Crypto Asset from a Liquidity Provider, after which the Filer incorporates a fee to compensate the Filer, and presents this total cost to the client. If the client is agreeable, the client confirms the trade. The Filer confirms the transaction with the Liquidity Providers and records in its books and records the particulars of the trade.

 

52.       In a buy transaction under a Crypto Contract, this results in the client instructing the Filer to request cash from the client’s account with WSII in order to fund the purchase. In a sell transaction under a Crypto Contract, cash proceeds are transferred by the Filer to the client’s account with WSII.

 

Pre-trade Controls and Settlement

 

53.       The Filer does not allow clients to enter into a Crypto Contract to buy and sell Crypto Assets unless the Filer has taken steps:

 

(a)       to review the Crypto Asset, including the information specified in paragraph 23,

 

(b)       to approve the Crypto Asset, and Crypto Contracts to buy and sell such Crypto Asset, to be made available to clients,

 

(c)        as set out in paragraph 28, to monitor the Crypto Asset for significant changes and review its approval under (b) where a significant change occurs.

 

54.       The Filer’s books and records record all of the trades executed on the Platform. No order will be accepted by the Filer unless there are sufficient cash or Crypto Assets available in the Client Account to complete the trade.

 

55.       The Filer does not, and will not, extend margin, credit or other forms of leverage to clients in connection with trading Crypto Assets on the Platform, and will not offer derivatives based on Crypto Assets to clients other than Crypto Contracts.

 

56.       The Filer promptly, and no later than two business days after the trade, settles transactions with the Liquidity Providers on a net basis. Where there are net purchases of Crypto Assets with a Liquidity Provider, the Filer arranges for cash to be transferred to the Liquidity Provider and Crypto Assets to be sent by the Liquidity Provider to the Filer. Where there are net sales of Crypto Assets, the Filer arranges for Crypto Assets to be sent from the Filer to the Liquidity Provider in exchange for cash received by the Filer from the Liquidity Provider.

 

57.       Clients receive electronic trade confirmations and monthly statements setting out the details of the transaction history in their Client Account. Clients are able to view their transaction history and account balances in real time by accessing their Client Account using the Apps or Website.

 

58.       In addition to the Risk Statement, Crypto Asset Statement and ongoing education initiatives described in paragraphs 35 to 42, and the account appropriateness assessment described in paragraph 35, the know-your-product assessments described in paragraphs 23 to 28, and the Client Limits described in paragraphs 35(d) and 41, the Filer also monitors client activity, and contacts clients to discuss their trading behaviour if it indicates a lack of knowledge or understanding of Crypto Asset trading, in an effort to identify and deter behaviours that may indicate that trading a Crypto Contract is not appropriate for the client, or that additional education is required. The outcome of this engagement with a client may result, in some cases, in a decision by the Filer to close a client’s account.

 

Custody of Crypto Assets

 

59.       The Filer holds clients’ Crypto Assets (i) in blockchain wallets or accounts clearly designated for the benefit of clients or in trust for clients, and (ii) separate and apart from its own assets (including crypto assets held in inventory by the Filer for operational purposes) and from the assets of any custodial service provider. The Filer is not permitted to pledge, re-hypothecate or otherwise use any Crypto Assets owned by its clients.

 

60.       The Filer is proficient and experienced in holding Crypto Assets and has established and applies policies and procedures that manage and mitigate custodial risks, including an effective system of controls and supervision to safeguard Crypto Assets. The Filer also maintains appropriate policies and procedures related to information technology security, cyber-resilience, disaster recovery capabilities, and business continuity plans.

 

61.       The Filer has expertise in and has developed anti-fraud and anti-money-laundering monitoring systems, for both fiat and Crypto Assets, to reduce the likelihood of fraud, money laundering, or client error in sending or receiving Crypto Assets to incorrect wallet addresses.

 

62.       The Filer maintains its own hot wallets to hold limited amounts of Crypto Assets that will be used to facilitate client deposit and withdrawal requests and to facilitate trade settlement with Liquidity Providers. However, the majority of Crypto Assets are held with three custodians (the Custodians):

 

(a)       Gemini Trust Company LLC (Gemini) is a licensed digital asset exchange and a New York trust company regulated by the New York State Department of Financial Services.

 

(b)       Coinbase Custody Trust Company LLC (Coinbase Custody) is a licensed digital asset exchange and a New York trust company regulated by the New York State Department of Financial Services.

 

(c)        BitGo Trust Company Inc. (BitGo Trust) is licensed as a trust company with the South Dakota Division of Banking.

 

63.       The Filer has conducted due diligence on the Custodians, including, among others, the custodian’s policies and procedures for holding Crypto Assets and a review of their respective SOC 2 Type 2 examination reports. The Filer has not identified any material concerns. The Filer has also assessed whether each Custodian meets the definition of an Acceptable Third-party Custodian.

 

64.       The Custodians operate custody accounts for the Filer to use for the purpose of holding the clients’ Crypto Assets in trust for clients of the Filer.

 

65.       Those Crypto Assets that the Custodians hold in trust for clients of the Filer are held in segregated omnibus accounts in the name of the Filer in trust for or for the benefit of the Filer’s clients and are held separate and distinct from the assets of the Filer, the Filer’s affiliates, and the Custodians’ other clients.

 

66.       Each Custodian has established and applies policies and procedures that manage and mitigate the custodial risks, including, but not limited to, an effective system of controls and supervision to safeguard the Crypto Assets for which it acts as custodian and to mitigate security breaches and cyber incidents. Each Custodian has established and applies written disaster recovery and business continuity plans.

 

67.       The Filer has assessed the risks and benefits of using the Custodians and has determined that in comparison to Canadian custodians (as that term is defined in NI 31-103), it is more prudent and beneficial to use the Custodians, as U.S. custodians, to hold the Crypto Assets the Custodians support with the Custodians than using a Canadian custodian. The Filer also considers it prudent to maintain relationships with more than one custodian so that it can provide back-up custodial services in appropriate circumstances for Crypto Assets supported by the Filer.

 

68.       Neither the Filer nor any Custodian holds client cash. As set out in paragraph 33, each client of the Filer opens a non-registered cash brokerage account with WSII for the sole purpose of holding cash that the client may use to engage in transactions on the Platform.

 

69.       Each of the Custodians maintains an appropriate level of insurance for Crypto Assets held by the Acceptable Third-party Custodian. The Filer has assessed the Custodians’ insurance policies and has determined, based on information that is publicly available and on information provided by the Custodians and considering the controls of the Custodians’ business, that the amount of insurance is appropriate.

 

70.       The Filer confirms on a daily basis that clients’ Crypto Assets held with the Custodians and held by the Filer reconcile with the Filer’s books and records to ensure that all clients’ Crypto Assets are accounted for. Clients’ Crypto Assets held in trust for their benefit in hot wallets and with Custodians are deemed to be the clients’ Crypto Assets in case of the insolvency and/or bankruptcy of the Filer or of its Custodians.

 

71.       Clients are permitted to transfer into their Client Account with the Filer, Crypto Assets they obtained outside the Platform or withdraw from their Client Account with the Filer, Crypto Assets they have purchased pursuant to their Crypto Contracts with the Filer or previously deposited with the Filer. The Filer may not support transfers for all Crypto Assets. Upon request by a client, the Filer will promptly deliver possession and/or control of the Crypto Assets purchased under a Crypto Contract to a blockchain address specified by the client, subject to first satisfying all applicable legal and regulatory requirements, including anti-money laundering requirements and anti-fraud controls.

 

72.       The Filer licenses software from Fireblocks Ltd. (Fireblocks) which includes a crypto asset wallet that stores private and public keys and interacts with various blockchains to send and receive crypto assets and monitor balances. Fireblocks uses secure multiparty computation to share signing responsibility for a particular blockchain address among multiple independent persons.

 

73.       Fireblocks has obtained a SOC report under the SOC 2 – Type 2 standards from a leading global audit firm. The Filer has reviewed a copy of the SOC 2 – Type 2 audit report prepared by the auditors of Fireblocks, and has not identified any material concerns.

 

74.       Fireblocks has insurance coverage in the amount of US$30 million in aggregate which, in the event of theft of crypto assets from hot wallets secured by Fireblocks due to an external cyber breach of Fireblocks’ software or any malicious or intentional misbehaviour or fraud committed by employees, will be distributed among applicable Fireblocks customers, which could include the Filer, pursuant to an insurance settlement agreement.

 

75.       The Filer has licensed software from Digital Assets Services Limited (trading as Coincover) (Coincover) to provide additional security for keys to Crypto Assets held by the Filer using Fireblocks, including key pair creation, key pair storage, device access recovery and account access recovery.

 

76.       In addition to the insurance coverage available through Fireblocks for Crypto Assets held in its hot wallets, the Filer has obtained a guarantee through Coincover. Coincover provides a guarantee to the Filer against the theft or loss of cryptocurrency owned, held in trust or managed by the Filer for its clients in a wallet provided by Fireblocks.

 

77.       The insurance obtained by the Filer includes coverage for loss or theft of the Crypto Assets, in accordance with the terms of the Filer’s insurance policy, and the Filer has assessed the insurance coverage to be sufficient to cover the loss of Crypto Assets, whether held directly by the Filer or indirectly through the Custodians.

 

Staking Services

 

78.       The Filer also offers staking services to its clients resident in each of the provinces and territories of Canada by which the Filer arranges to stake Crypto Assets and earn staking rewards for participating clients (the Staking Services).

 

79.       The Filer offers clients the Staking Services only for (i) Crypto Assets of blockchains that use a proof of stake consensus mechanism and (ii) the staked Crypto Assets that are used to guarantee the legitimacy of new transactions the Validator adds to the blockchain (Stakeable Crypto Assets).

 

80.       The Filer is proficient and knowledgeable about staking Stakeable Crypto Assets.

 

81.       The Filer itself does not act as a Validator. The Filer has entered into written agreements with certain of its Custodians and/or with third party Validators to provide services in respect of staking Stakeable Crypto Assets. These Custodians and Validators are proficient and experienced in staking Stakeable Crypto Assets.

 

82.       Before engaging a Validator, the Filer conducts due diligence on the Validator, with consideration for the Validator’s management, infrastructure and internal control documentation, security measures and procedures, reputation of operating nodes, use by others, measures to operate nodes securely and reliably, amount of crypto assets staked by the Validator on its own nodes, quality of work, including any slashing incidents or penalties, financial status and insurance, and registration, licensing or other compliance under applicable laws, particularly securities laws. Where the Filer engages a Custodian to provide staking services, the Filer conducts due diligence on how the Custodian provides the staking services and selects the Validators.

 

83.       The Filer currently offers the Staking Services in respect of the Ethereum, Solana and Cardano blockchains. The Filer may offer the Staking Services in respect of other Stakeable Crypto Assets in the future.

 

84.       The Filer, as part of its KYP Policy, reviews the Stakeable Crypto Assets made available to clients for staking and staking protocols related to those Stakeable Crypto Assets prior to offering those Stakeable Crypto Assets as part of the Staking Services. The Filer’s review includes the following:

 

(a)       the Stakeable Crypto Assets that the Filer proposes to offer for staking;

 

(b)       the operation of the proof-of-stake blockchain for the Stakeable Crypto Assets that the Filer proposes to offer for staking;

 

(c)        the staking protocols for the Stakeable Crypto Assets that the Filer proposes to offer for staking;

 

(d)       the risks of loss of the staked Stakeable Crypto Assets, including from software bugs and hacks of the protocol;

 

(e)       the Validators engaged by the Filer or the Filer’s Custodians, including, but not limited to, information about:

 

                                         (i)         the persons or entities that manage and direct the operations of the Validator,

 

                                        (ii)        the Validator’s reputation and use by others,

 

                                       (iii)         the amount of Crypto Assets the Validator has staked on its own nodes,

 

                                      (iv)         the measures in place by the Validator to operate the nodes securely and reliably,

 

                                        (v)        the financial status of the Validator,

 

                                      (vi)         the performance history of the Validator, including but not limited to the amount of downtime of the Validator, past history of “double signing” and “double attestation/voting”,

 

                                     (vii)        any losses of Stakeable Crypto Assets related to the Validator’s actions or inactions, including losses resulting from slashing, jailing or other penalties incurred by the Validator, and

 

                                    (viii)         any guarantees offered by the Validator against losses including losses resulting from slashing or other penalties and any insurance obtained by the Validator that may cover this risk.

 

85.       The Filer, as part of its account appropriateness assessment, evaluates whether offering the Staking Services is appropriate for a client before providing access to an account that makes available the Staking Services and, on an ongoing basis, at least once in each 12-month period.

 

86.       If, after completion of an account appropriateness assessment, the Filer determines that providing the Staking Services is not appropriate for the client, the Filer will include prominent messaging to the client that this is the case and the Filer will not make available the Staking Services to the client.

 

87.       The Filer only stakes the Stakeable Crypto Assets of those clients who have agreed to the Staking Services and have allocated Stakeable Crypto Assets to be staked. Where a client no longer wishes to stake all or a portion of the allocated Stakeable Crypto Assets, subject to any Lock-Up Periods (as defined below) or any terms of the Staking Services that permit the client to remove Stakeable Crypto Assets from the Staking Services prior to the expiry of any Lock-Up Periods, the Filer ceases to stake those Stakeable Crypto Assets.

 

88.       Before the first time a client allocates any Stakeable Crypto Assets to be staked, the Filer delivers to the client the Risk Statement that includes the risks with respect to staking and the Staking Services described in paragraph 89 below, and requires the client to provide electronic acknowledgement of having received, read and understood the Risk Statement.

 

89.       The Filer clearly explains in the Risk Statement the risks with respect to staking and the Staking Services in plain language, which includes:

 

(a)       the details of the Staking Services and the role of all third parties involved;

 

(b)       the due diligence performed by the Filer with respect to the proof-of-stake consensus protocol for each Stakeable Crypto Asset for which the Filer provides the Staking Services;

 

(c)        the details of the Validators that will be used for the Staking Services and the due diligence performed by the Filer with respect to the Validators;

 

(d)       the details of whether and how the custody of staked Stakeable Crypto Assets differs from Stakeable Crypto Assets held on behalf of the Filer's clients that are not engaged in staking;

 

(e)       the general risks related to staking and any risks arising from the arrangements used by the Filer to offer the Staking Services (e.g., reliance on third parties; risk of loss due to technical errors or bugs in the protocol; hacks or theft from the crypto assets being held in hot wallets, etc.) and how any losses will be allocated to clients;

 

(f)         whether the Filer will reimburse clients for any Stakeable Crypto Assets lost due to slashing or other penalties imposed due to Validator error, action or inactivity or how any losses will be allocated to clients;

 

(g)       whether any of the staked Stakeable Crypto Assets are subject to any lock-up, unbonding, unstaking, or similar periods imposed by the Crypto Asset protocol, custodian or Validator, where such Crypto Assets will not be accessible to the client or will be accessible only after payment of additional fees or penalties or forfeiture of any rewards (Lock-up Periods); and

 

(h)       how rewards are calculated on the staked Stakeable Crypto Assets, including any fees charged by the Filer or any third party, how rewards are paid out to clients, and any associated risks.

 

90.       Immediately before each time that a client allocates Stakeable Crypto Assets to be staked under the Staking Services, the Filer requires the client to acknowledge the risks of staking Stakeable Crypto Assets as may be applicable to the particular Staking Services or each particular Stakeable Crypto Asset, including, but not limited to:

 

(a)       that the staked Stakeable Crypto Asset may be subject to a Lock-up Period and, consequently, the client may not be able to sell or withdraw their Stakeable Crypto Asset for a predetermined or unknown period of time, with details of any known period, if applicable;

 

(b)       that given the volatility of Crypto Assets, the value of a client’s staked Stakeable Crypto Asset when they are able to sell or withdraw, and the value of any Stakeable Crypto Asset earned through staking, may be significantly less than the current value;

 

(c)        how rewards will be calculated and paid out to clients and any risks inherent in the calculation and payout of any rewards;

 

(d)       that there is no guarantee that the client will receive any rewards on the staked Stakeable Crypto Asset, and that past rewards are not indicative of expected future rewards;

 

(e)       whether rewards may be changed at the discretion of the Filer;

 

(f)         unless the Filer guarantees any Stakeable Crypto Assets lost to slashing, that the client may lose all or a portion of the client’s staked Stakeable Crypto Assets if the Validator does not perform as required by the network;

 

(g)       if the Filer offers a guarantee to prevent loss of any Stakeable Crypto Assets arising from the Staking Services, including due to slashing, any limits on that guarantee and requirements for a client to claim under the guarantee; and

 

(h)       that additional risks can be found in the Risk Statement and Crypto Asset Statement, including the names and other information regarding the Validators and information regarding Lock-up Periods and rewards, with a link to the Risk Statement and Crypto Asset Statement.

 

91.       The Staking Services are currently only available by using the Apps. The Filer may make the Staking Services available through the Web Site in the future.

 

92.       To stake Stakeable Crypto Assets, a client may use the Apps to instruct the Filer to stake a specified amount of Stakeable Crypto Assets held by the client on the Platform.

 

93.       For certain Stakeable Crypto Assets, the Filer also allows clients to automatically stake those Stakeable Crypto Assets when purchasing more of the asset. If a client turns on this “auto-stake” feature, Stakeable Crypto Assets are automatically staked upon being purchased by the client. The client can disable this feature at any time.

 

94.       Immediately before each time a client buys Stakeable Crypto Assets that are automatically staked, the Filer provides prominent disclosure to the client that the Stakeable Crypto Asset the client is about to buy will be automatically staked.

 

95.       Subject to any Lock-up Periods that may apply, the client may at any time use the Apps to instruct the Filer to unstake a specified amount of Stakeable Crypto Assets that the client had previously staked.

 

96.       The Filer stakes and unstakes Crypto Assets on an omnibus basis by calculating the total amount of a Stakeable Crypto Asset that clients wish to stake or unstake and adjusting the amount actually staked to reconcile with the net amount that clients have, in total, instructed the Filer to stake or unstake.

 

97.       The Filer holds the staked Stakeable Crypto Assets in trust for or for the benefit of its clients in one or more omnibus staking wallets in the name of the Filer for the benefit of the Filer’s clients with the Custodians separate and distinct from (i) the assets of the Filer, the Custodians and the Custodians’ other clients; and (ii) the Crypto Assets held for its clients that have not agreed to staking those specific Crypto Assets.

 

98.       To stake clients’ Stakeable Crypto Assets, the Filer instructs a Custodian to transfer Stakeable Crypto Assets to an omnibus staking wallet and to sign a blockchain transaction confirming that assets in that wallet are to be staked with a Validator.

 

99.       Similarly, when unstaking Stakeable Crypto Assets, the Filer instructs a Custodian to sign a blockchain transaction confirming that assets in a staking wallet are no longer staked. After expiry of any Lock-up Periods that may prevent the assets from being transferred, the Filer instructs the Custodian to transfer the unstaked assets from the staking wallet to cold storage wallets holding unstaked Stakeable Crypto Assets.

 

100.    The Filer and the Custodians remain in possession, custody and control of the staked Stakeable Crypto Assets at all times. At all times, the Custodians continue to hold the private keys or other cryptographic key material required to stake or unstake clients’ Stakeable Crypto Assets or to access staking rewards. Custody, possession and control of staked Stakeable Crypto Assets are not transferred to Validators or any other third parties in connection with the Staking Services.

 

101.    The Filer has established and applies policies and procedures to address how staking rewards, fees and losses will be calculated and allocated to clients that have staked Stakeable Crypto Assets under the Staking Services.

 

102.    Staking rewards are issued periodically and automatically by the blockchain protocol of the Stakeable Crypto Asset and received directly into the staking wallets with the Custodians. Other than any “validator commission” that may be received by a Validator under the rules of the blockchain protocol, Validators do not receive or otherwise have control over staking rewards earned by clients.

 

103.    Staking rewards are typically issued for a specific time period, often referred to as an “epoch”. For each “epoch”, the Filer promptly determines the amount of staking rewards earned by each client that had staked Stakeable Crypto Assets under the Staking Services.

 

104.    When staking rewards for a Stakeable Crypto Asset are received into staking wallets, the Filer promptly calculates the amount of the staking reward earned by each client using the Staking Services in respect of that asset and credits each client’s account accordingly. Staking reward distributions are shown in the Apps and on clients’ account statements.

 

105.    For certain Stakeable Crypto Assets, staking rewards are automatically staked by the blockchain protocol to compound rewards. Clients must unstake some or all of these rewards if they wish to sell or transfer them.

 

106.    Where staking rewards are not compounded by the blockchain protocol, the Filer instructs the Custodian to transfer staking rewards from the staking wallets to other omnibus wallets holding client Crypto Assets.

 

107.    Certain Stakeable Crypto Assets are subject to a so-called “warm-up” or “bonding” period after being staked, during which time the Stakeable Crypto Assets do not earn any staking rewards. A client will not receive staking rewards in respect of any of their staked Stakeable Crypto Assets that are still subject to “warm-up” periods.

 

108.    Similarly, a client will not receive staking rewards in respect of Stakeable Crypto Assets that have been unstaked by the client but are still subject to Lock-up Periods.

 

109.    The Filer does not promise or guarantee its clients a specific staking reward rate for any Stakeable Crypto Asset. The Filer does not exercise any discretion to change reward rates.

 

110.    The Filer may show in the Apps or Web Site the current estimated reward rate for Stakeable Crypto Assets. This estimated reward rate is based on data derived from the blockchain for the Stakeable Crypto Asset and adjusted for any applicable validator commission or fees payable to the Filer.

 

111.    The Filer charges a fee to clients using Staking Services based on a percentage of the client’s staking rewards. The Filer clearly discloses the fees charged by the Filer for the Staking Services and provides a clear calculation of the rewards earned by each client that agrees to the Staking Services.

 

112.    When staking rewards are received into staking wallets each epoch, the Filer promptly calculates the total amount of the fee payable by clients using the Staking Services for that epoch and transfers an amount of Stakeable Crypto Assets equal to the fee to a separate wallet exclusively holding Crypto Assets belonging to the Filer.

 

113.    For certain Stakeable Crypto Assets, a Validator can, as part of the blockchain consensus protocol, set a percentage of the staking rewards earned by Stakeable Crypto Assets staked with the Validator to be received by the Validator. This is typically referred to as the “validator commission”. The validator commission is deducted automatically by the underlying blockchain protocol from staking rewards and transferred by the protocol directly to the Validator. Where a “validator commission” applies, the Filer clearly discloses the existence and amount of the validator commission to clients using the Staking Services.

 

114.    Under the commercial agreements between the Filer and Validators, Validators may pay some of the validator commission to the Filer for arranging the staking of clients’ Stakeable Crypto Assets with the Validators. The Filer discloses to clients that it receives a share of validator commissions. Further, the Filer has adopted policies and procedures for the selection of Validators and staking of clients’ Stakeable Crypto Assets to Validators to ensure that these decisions are based on factors other than the Filer’s financial considerations under these commercial agreements.

 

115.    For Stakeable Crypto Assets that do not have “validator commissions”, the Filer pays a fee to the Validator and/or a Custodian for activating and operating nodes for the Filer’s clients using the Staking Services. This fee is included in the fee paid by clients to the Filer in connection with the Staking Services.

 

116.    Certain proof of stake blockchain protocols impose penalties where a validator fails to comply with protocol rules. This penalty is often referred to as “slashing” or “jailing”. If a Validator is “slashed” or “jailed”, a percentage of the tokens staked with that Validator and/or a percentage of staking rewards earned by clients staking to that Validator is permanently lost and/or the Validator will not be selected to participate in transaction validation and any Stakeable Crypto Assets staked with that Validator will not be eligible to earn staking rewards. Accordingly, if a Validator fails to comply with protocol rules, a percentage of Crypto Assets staked or earned by the Filer’s clients may be lost (i.e., the balance of the staking wallet will be reduced automatically by the blockchain protocol) and/or the Filer’s clients will not earn staking rewards for a period of time.

 

117.    For certain Stakeable Crypto Assets, the Filer may agree to reimburse clients for slashing penalties. The Client Account Agreement clearly provides for the circumstances the Filer will provide this reimbursement in respect of a Stakeable Crypto Asset. The availability of any reimbursement, and any conditions or limits on the reimbursement, are also described in the Risk Statement or the relevant Crypto Asset Statement.

 

118.    To mitigate the risk of slashing or jailing to clients, the Filer may, where feasible, arrange to stake Stakeable Crypto Assets across multiple Validators, so that any penalty resulting from the actions or inaction of a specific Validator does not affect all staked Crypto Assets and the Filer can, if appropriate, re-stake with alternative Validators.

 

119.    In addition, the Filer monitors its Validators for, among other things, downtime, jailing and slashing events and takes any appropriate action to protect Stakeable Crypto Assets staked by clients.

 

120.    For certain Stakeable Crypto Assets that are subject to Lock-up Periods, the Filer may provide clients using the Staking Services with the ability to sell or withdraw assets immediately after unstaking the assets, even though the newly unstaked assets are subject to a Lock-up Period and cannot yet be transferred from the staking wallet.

 

121.    Where the Filer provides this service in connection with a Stakeable Crypto Asset, the Filer provides the liquidity necessary for clients to sell or withdraw Crypto Assets prior to the expiry of Lock-up Periods from the Filer’s own inventory of Stakeable Crypto Assets in accordance with its liquidity management policies and procedures. When the Lock-up Period applicable to a clients’ unstaked Crypto Assets expires, the Filer returns the now freely transferable assets to its inventory.

 

122.    Where the Filer does not provide this liquidity for a Stakeable Crypto Asset, a client that unstakes Stakeable Crypto Assets must wait until the applicable Lock-up Period expires before the client can sell or transfer those assets.

 

 

 

 

Capital Requirements

 

123.    The Filer will exclude from the excess working capital calculation all the Crypto Assets, including Proprietary Tokens and all Value-Referenced Crypto Assets, it holds for which there is no offsetting by a corresponding current liability, such as Crypto Assets held for its clients as collateral to guarantee obligations under Crypto Contracts, included on line 1, Current assets, of Form 31-103F1. This will result in the exclusion of all the Crypto Assets inventory, including Proprietary Tokens inventory and all of the Value-Referenced Crypto Assets inventory, held by the Filer from Form 31-103F1 (Schedule 1, line 9).

 

Marketplace and Clearing Agency

 

124.    The Filer does not and will not operate a “marketplace” as that term is defined in National Instrument 21-101 Marketplace Operation and in Ontario, subsection 1(1) of the Act. 

 

125.    The Filer does not and will not operate a “clearing agency” or a “clearing house” as the terms are defined or referred to in securities legislation. Any clearing or settlement activity conducted by the Filer is incidental to the Filer engaging in the business of a CTP. Any activities of the Filer that may be considered the activities of a clearing agency or clearing house are related to the Filer arranging or providing for settlement of obligations resulting from agreements entered into on a bilateral basis and without a central counterparty.

 

Decision

 

The Principal Regulator is satisfied that the Decision satisfies the test set out in the Legislation for the Principal Regulator to make the Decision and each Coordinated Review Decision Maker is satisfied that the Decision in respect of the Trade Reporting Relief, as applicable, satisfies the tests set out in the securities legislation of its jurisdiction for the Coordinated Review Decision Maker to make the Decision in respect of the Trade Reporting Relief, as applicable.

 

The Decision of the Principal Regulator under the Legislation is that the Prior CSA Decision is revoked and the Requested Relief is granted, and the Decision of each Coordinated Review Decision Maker under the securities legislation in its jurisdiction is that the Trade Reporting Relief, as applicable, is granted, provided that:

 

(a)        Unless otherwise exempted by a further decision of the Principal Regulator and, if required under securities legislation, the regulator or securities regulatory authority of any other Jurisdiction, the Filer complies with all of the terms, conditions, restrictions and requirements applicable to a registered dealer under securities legislation, including the Legislation, and any other terms, conditions, restrictions or requirements imposed by a securities regulatory authority or regulator on the Filer.

 

(b)        The Filer is registered as a restricted dealer in the Jurisdiction and the jurisdiction in which the client is resident.

 

(c)        The Filer will continue to work actively and diligently with CIRO to transition the operation of the Platform from the Filer to WSII.

 

(d)        The Filer, and any employee, agent or other representatives of the Filer, will not provide recommendations or advice to any client or prospective client on the Platform.

 

(e)        The Filer will only engage in the business of trading Crypto Contracts in relation to Crypto Assets, and performing its obligations under those contracts. The Filer will seek the appropriate approvals from the Principal Regulator and, if required under securities legislation, the regulator or securities regulatory authority of any other Applicable Jurisdiction, prior to undertaking any other activity governed by securities legislation. The Filer will not offer derivatives based on Crypto Assets other than Crypto Contracts.

 

(f)         The Filer will not operate a "marketplace” as the term is defined in National Instrument 21-101 Marketplace Operation and in Ontario, in subsection 1(1) of the Act or a “clearing agency” or “clearing house” as the terms are defined or referred to in securities legislation.

 

(g)        The Filer has and will continue to confirm that it is not liable for the debt of an affiliate or affiliates that could have a material negative effect on the Filer.

 

(h)        At all times, the Filer will hold not less than 80% of the total value of all Crypto Assets held on behalf of clients with one or more custodians that meets the definition of an “Acceptable Third-party Custodian”, unless the Filer has obtained the prior written approval of the Principal Regulator to hold a different percentage with an Acceptable Third-party custodian or has obtained the prior written approval of the Principal Regulator and the regulator or securities regulatory authority of the other Jurisdictions to hold at least 80% of the total value of the Crypto Assets with an entity that does not meet certain criteria of an Acceptable Third-party Custodian.

 

(i)          Before the Filer holds Crypto Assets with an Acceptable Third-Party Custodian, the Filer will take reasonable steps to verify that the custodian:

 

                    (i)              will hold the Crypto Assets for the Filer’s clients (i) in an account clearly designated for the benefit of the Filer’s clients or in trust for the Filer’s clients, (ii) separate and apart from the assets of the custodian’s other clients, and (iii) separate and apart from the custodian’s own assets and from the assets of any custodial service provider;

 

                  (ii)              has appropriate insurance to cover the loss of Crypto Assets held at the custodian;

 

                 (iii)              has established and applies written policies and procedures that manage and mitigate the custodial risks, including, but not limited to, an effective system of controls and supervision to safeguard the Crypto Assets for which it acts as custodian; and

 

                 (iv)              meets each of the requirements to be an Acceptable Third-party Custodian, except for those criteria in respect of which the custodian does not meet and the Principal Regulator and the regulator or securities regulatory authority of the other Jurisdictions have provided prior written approval for use of the custodian.

 

(j)          The Filer will promptly notify the Principal Regulator if the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, the Financial Industry Regulatory Authority, the National Futures Association, the South Dakota Division of Banking or the New York State Department of Financial Services makes a determination that a custodians is not permitted by that regulatory authority to hold client Crypto Assets. In such a case, the Filer will identify a suitable alternative custody provider that meets the definition of an Acceptable Third-party Custodian to hold the Crypto Assets.

 

(k)        For the Crypto Assets held by the Filer, the Filer will:

 

                    (i)              hold the Crypto Assets in trust for the benefit of its clients, and separate and distinct from the assets of the Filer;

 

                  (ii)              ensure there is appropriate insurance for the loss of Crypto Assets held by the Filer; and

 

                 (iii)              have established and apply written policies and procedures that manage and mitigate the custodial risks, including, but not limited to, an effective system of controls and supervision to safeguard the Crypto Assets for which it acts as custodian.

 

(l)          The Filer will only use Liquidity Providers that it has verified are registered and/or licensed, to the extent required in their respective home jurisdictions, to execute trades in the Crypto Assets and are not in default of securities legislation in any of the Applicable Jurisdictions, and will promptly stop using a Liquidity Provider if (i) the Filer is made aware that the Liquidity Provider is, or (ii) a court, regulator or securities regulatory authority in any jurisdiction of Canada has determined it to be, not in compliance with securities legislation.

 

(m)      The Filer will evaluate the price obtained from its Liquidity Providers on an ongoing basis against global benchmarks and will provide fair and reasonable prices to its clients.

 

(n)        The Filer will assess liquidity risk and concentration risk posed by its Liquidity Providers. The liquidity and concentration risks assessment will consider trading volume data (as provided in paragraph 1(e) of Appendix D) and complete a historical analysis of each Liquidity Provider and a relative analysis between the Liquidity Providers. Consideration should be given to whether the Liquidity Provider has issued its own Proprietary Tokens and to consider limiting reliance on those Liquidity Providers.

 

(o)        Before each prospective client opens a Client Account, the Filer will deliver to the client a Risk Statement and will require the client to provide electronic acknowledgement of having received, read and understood the Risk Statement.

 

(p)        The Risk Statement delivered as set out in condition (o) will be prominent and separate from other disclosures given to the client as part of the account opening process, and the acknowledgement will be separate from other acknowledgements by the client as part of the account opening process.

 

(q)        A copy of the Risk Statement acknowledged by a client will be made available to the client in the same place as the client’s other statements on the Platform.

 

(r)         Before a client enters into a Crypto Contract to buy a Crypto Asset, the Filer will provide instructions for the client to read the Crypto Asset Statement for the Crypto Asset, which will include a link to the Crypto Asset Statement including the information set out in paragraph 40.

 

(s)        The Filer will promptly update the Risk Statement and each Crypto Asset Statement to reflect any material changes to the disclosure or include any material risks that may develop with respect to the Crypto Contracts and/or Crypto Assets, and,

 

                        (i)          in the event of any update to the Risk Statement, will promptly notify each existing client of the update and deliver to them a copy of the updated Risk Statement, and

 

                       (ii)          in the event of any update to a Crypto Asset Statement, will promptly notify clients through electronic disclosures on the Platform, with links to the updated Crypto Asset Statement.

 

(t)         Prior to the Filer delivering a Risk Statement to a client, the Filer will deliver, or will have previously delivered, a copy of the Risk Statement delivered to the client to the Principal Regulator.

 

(u)        For each client, the Filer will perform an appropriateness assessment as described in paragraph 35 prior to opening a Client Account, on an ongoing basis and at least every twelve months.

 

(v)        The Filer has established and will apply and monitor the Client Limits as set out in paragraph 35(d).

 

(w)       The Filer will monitor client activity and contact clients to discuss their trading behaviour if it indicates a lack of knowledge or understanding of Crypto Asset trading, in an effort to identify and deter behaviours that may indicate that trading a Crypto Contract is not appropriate for the client, or that additional education is required.

 

(x)        The Filer will ensure that the maximum amount of Crypto Assets, excluding Specified Crypto Assets, that a client, except those clients resident in Alberta, British Columbia, Manitoba and Québec, may purchase and sell on the Platform (calculated on a net basis and is an amount not less than $0) in the preceding 12 months does not exceed a net acquisition cost of $30,000.

 

(y)        In the jurisdictions where the Prospectus Relief is required, the first trade of a Crypto Contract is deemed to be a distribution under securities legislation of that jurisdiction.

 

(z)        The Filer will provide the Principal Regulator with at least 10 days' prior written notice of any:

 

                        (i)          change of or use of a new custodian; and

 

                       (ii)          material changes to the Filer’s ownership, its business operations, including its systems, or its business model.

 

(aa)     The Filer will notify the Principal Regulator, promptly, of any material breach or failure of its or its custodian’s system of controls or supervision, and what steps have been taken by the Filer to address each such breach or failure. The loss of any amount of Crypto Assets will be considered a material breach or failure.

 

(bb)     The Filer will only trade Crypto Assets or Crypto Contracts based on Crypto Assets that are not in and of themselves securities or derivatives.

 

(cc)     The Filer will evaluate Crypto Assets as set out in paragraphs 23 to 28.

 

(dd)     The Filer will not trade Crypto Assets or Crypto Contracts based on Crypto Assets with a client, without the prior written consent of the regulator or securities regulatory authority of the Applicable Jurisdictions, where the Crypto Assets was issued by or on behalf of a person or company that is or has in the last five years been the subject of an order, judgment, decree, sanction, fine, or administrative penalty imposed by, or has entered into a settlement agreement with, a government or government agency, administrative agency, self-regulatory organization, administrative tribunal or court in Canada or in a Specified Foreign Jurisdiction in relation to a claim based in whole or in part on fraud, theft, deceit, aiding and abetting or otherwise facilitating criminal activity, misrepresentation, violation of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), conspiracy, breach of trust, breach of fiduciary duty, insider trading, market manipulation, unregistered trading, illegal distributions, failure to disclose material facts or changes, or allegations of similar conduct.

 

(ee)     Except to allow clients to liquidate their positions in an orderly manner in those Crypto Contracts or transfer such Crypto Assets to a blockchain address specified by the client, the Filer will promptly stop trading Crypto Contracts where the underlying is a Crypto Asset that (i) the Filer determines it to be, (ii) a court, regulator or securities regulatory authority in any jurisdiction of Canada or the foreign jurisdiction with which the Crypto Asset has the most significant connection determines it to be, or (iii) the Filer is made aware or is informed that the Crypto Asset is viewed by a regulator or securities regulatory authority to be, a security and/or derivative.

 

(ff)        The Filer will not engage in trades that are part of, or designed to facilitate, the creation, issuance or distribution of Crypto Assets by the developer(s) of the Crypto Asset, its issuers or affiliates or associates of such persons.

 

(gg)     The Filer will exclude from the excess working capital calculation all the Crypto Assets, including Proprietary Tokens and all Value-Referenced Crypto Assets, it holds for which there is no offsetting by a corresponding current liability, as described in paragraph 123.

 

Staking

 

(hh)     The Filer will comply with the terms and conditions in Appendix C in respect of the Staking Services.

 

Reporting

 

(ii)        The Filer will deliver the reporting as set out in Appendix D.

 

(jj)        Within 7 calendar days from the end of each month, the Filer will deliver to the regulator or securities regulatory authority in each of the Applicable Jurisdictions, a report of all Client Accounts for which the Client Limits established pursuant to paragraph 35(d) were exceeded during that month.

 

(kk)     The Filer will provide certain reporting in respect of the preceding calendar quarter to its Principal Regulator within 30 days of the end of March, June, September and December in connection with the Staking Services, including, but not limited to:

 

                        (i)          the total number of clients to which the Filer provides the Staking Services;

 

                       (ii)          the Crypto Assets for which the Staking Services are offered;

 

                      (iii)          for each Crypto Asset that may be staked:

A.   the amount of Crypto Assets staked,

B.   the amount of each such Crypto Assets staked that is subject to a Lock-up Period and the length of the Lock-up Period;

C.   the amount of Crypto Assets that clients have requested to unstake; and

D.   the amount of rewards earned by the Filer and the clients for the Crypto Assets staked under the Staking Services;

 

                     (iv)          the names of any third parties used to conduct the Staking Services;

 

                      (v)          any instance of slashing, jailing or other penalties being imposed for validator error and

 

                     (vi)          the details of why these penalties were imposed; and

 

                    (vii)          any reporting regarding the Filer’s liquidity management as requested by the Principal Regulator.

 

(ll)        The Filer will deliver to the Principal Regulator, within 30 days of the end of each March, June, September and December, either (i) blackline copies of changes made to the policies and procedures on the operations of its wallets (including, but not limited to, establishment of wallets, transfer of Crypto Assets into and out of the wallets, and authorizations to access the wallets) previously delivered to the Principal Regulator or (ii) a nil report stating no changes have been made to its policies and procedures on the operations of its wallets in the quarter.

 

(mm)  In addition to any other reporting required by the Legislation, the Filer will provide, on a timely basis, any report, data, document or information to the Principal Regulator, including any information about the Filer’s custodian(s) and the Crypto Assets held by the Filer’s custodian(s), that may be requested by the Principal Regulator from time to time as reasonably necessary for the purpose of monitoring compliance with the Legislation and the conditions in the Decision, in a format acceptable to the Principal Regulator.

 

(nn)     Upon request, the Filer will provide the Principal Regulator and the regulators or securities regulatory authorities of each of the Non-Principal Jurisdictions with aggregated and/or anonymized data concerning client demographics and activity on the Platform that may be useful to advance the development of the Canadian regulatory framework for trading crypto assets.

 

(oo)     The Filer will promptly make any changes to its business practices or policies and procedures that may be required to address investor protection concerns that may be identified by the Filer or by the Principal Regulator arising from the operation of the Platform.

 

Time Limited Relief

 

(pp)     This Decision shall expire upon the earlier of:

 

                        (i)          January 1, 2024; or 

 

                       (ii)          the date of the transition of the Platform to WSII.

 

(qq)     This Decision may be amended by the Principal Regulator upon prior written notice to the Filer in accordance with applicable securities legislation.

 

 

In respect of the Prospectus Relief:

 

Dated: June 15, 2023

 

“David Surat”

____________________________________

David Surat

Manager (Acting), Corporate Finance

Ontario Securities Commission

 

In respect of the Suitability Relief:

 

Dated: June 15, 2023

 

“Debra Foubert”

____________________________________

Debra Foubert

Director, Compliance and Registrant Regulation

Ontario Securities Commission

 

In respect of the Trade Reporting Relief:

 

Dated: June 23, 2023

 

“Kevin Fine”

____________________________________

Kevin Fine

Director, Derivatives

Ontario Securities Commission

 

Appendix A – Local Trade Reporting Rules

 

In this Decision the “Local Trade Reporting Rules” collectively means each of the following:

 

(a)        Part 3, Data Reporting of Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting (OSC Rule 91-507);

 

(b)        Part 3, Data Reporting of Manitoba Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting (MSC Rule 91-507);

 

(c)        Part 3, Data Reporting of Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting in Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan, and Yukon (MI 96-101).

 

 

Appendix B - List of Specified Crypto Assets

 

●     Bitcoin

●     Ether

●     Bitcoin Cash

●     Litecoin

Appendix C – Staking Terms and Conditions

 

1.          The Staking Services are offered in relation to the Stakeable Crypto Assets that are subject to a Crypto Contract between the Filer and a client.

 

2.          Unless the Principal Regulator has provided its prior written consent, the Filer offers clients the Staking Services only for (i) Crypto Assets of blockchains that use a proof of stake consensus mechanism and (ii) the staked Crypto Assets that are used to guarantee the legitimacy of new transactions the Validator adds to the blockchain (i.e., Stakeable Crypto Assets).

 

3.          The Filer is proficient and knowledgeable about staking Stakeable Crypto Assets.

 

4.          The Filer itself does not act as a Validator. The Filer has entered into written agreements with third parties to stake Stakeable Crypto Assets and each such third party is proficient and experienced in staking Stakeable Crypto Assets.

 

5.          The Filer’s KYP Policy includes a review of the Stakeable Crypto Assets made available to clients for staking and staking protocols related to those Stakeable Crypto Assets prior to offering those Stakeable Crypto Assets as part of the Staking Services. The Filer’s review includes the following:

 

(a)       the Stakeable Crypto Assets that the Filer proposes to offer for staking;

 

(b)       the operation of the proof-of-stake blockchain for the Stakeable Crypto Assets that the Filer proposes to offer for staking;

 

(c)        the staking protocols for the Stakeable Crypto Assets that the Filer proposes to offer for staking;

 

(d)       the risks of loss of the staked Stakeable Crypto Assets, including from software bugs and hacks of the protocol;

 

(e)       the Validators engaged by the Filer or the Filer’s Custodians, including, but not limited to, information about:

 

                                         (i)         the persons or entities that manage and direct the operations of the Validator,

 

                                        (ii)        the Validator’s reputation and use by others,

 

                                       (iii)         the amount of Stakeable Crypto Assets the Validator has staked on its own nodes,

 

                                      (iv)         the measures in place by the Validator to operate the nodes securely and reliably,

 

                                        (v)        the financial status of the Validator,

 

                                      (vi)         the performance history of the Validator, including but not limited to the amount of downtime of the Validator, past history of “double signing” and “double attestation/voting”,

 

                                     (vii)        any losses of Stakeable Crypto Assets related to the Validator’s actions or inactions, including losses resulting from slashing, jailing or other penalties incurred by the Validator, and

 

                                    (viii)         any guarantees offered by the Validator against losses including losses resulting from slashing or other penalties and any insurance obtained by the Validator that may cover this risk.

 

6.          The Filer has policies and procedures to assess account appropriateness for a client includes consideration of the Staking Services to be made available to that client.

 

7.          The Filer applies the account appropriateness policies and procedures to evaluate whether offering the Staking Services is appropriate for a client before providing access to an account that makes available the Staking Services and, on an ongoing basis, at least once in each 12-month period.

 

8.          If, after completion of an account-level appropriateness assessment, the Filer determines that providing the Staking Services is not appropriate for the client, the Filer will include prominent messaging to the client that this is the case and the Filer will not make available the Staking Services to the client.

 

9.          The Filer only stakes the Stakeable Crypto Assets of those clients who have agreed to the Staking Services and have allocated Stakeable Crypto Assets to be staked. Where a client no longer wishes to stake all or a portion of the allocated Stakeable Crypto Assets, subject to any Lock-Up Periods (as defined below) or any terms of the Staking Services that permit the client to remove Stakeable Crypto Assets from the Staking Services prior to the expiry of any Lock-Up Periods, the Filer ceases to stake those Stakeable Crypto Assets.

 

10.       Before the first time a client allocates any Stakeable Crypto Assets to be staked, the Filer delivers to the client the Risk Statement that includes the risks with respect to staking and the Staking Services described in paragraph 11 below, and requires the client to provide electronic acknowledgement of having received, read and understood the Risk Statement.

 

11.       The Filer clearly explains in the Risk Statement the risks with respect to staking and the Staking Services in plain language, which include, at a minimum:

 

(a)       the details of the Staking Services and the role of all third parties involved;

 

(b)       the due diligence performed by the Filer with respect to the proof-of-stake consensus protocol for each Crypto Asset for which the Filer provides the Staking Services;

 

(c)        the details of the Validators that will be used for the Staking Services and the due diligence performed by the Filer with respect to the Validators;

 

(d)       the details of whether and how the custody of staked Stakeable Crypto Assets differs from Crypto Assets held on behalf of the Filer's clients that are not engaged in staking;

 

(e)       the general risks related to staking and any risks arising from the arrangements used by the Filer to offer the Staking Services (e.g., reliance on third parties; risk of loss due to technical errors or bugs in the protocol; hacks or theft from the crypto assets being held in hot wallets, etc.) and how any losses will be allocated to clients;

 

(f)         whether the Filer will reimburse clients for any Stakeable Crypto Assets lost due to slashing or other penalties imposed due to Validator error, action or inactivity or how any losses will be allocated to clients;

 

(g)       whether any of the staked Stakeable Crypto Assets are subject to any lock-up, unbonding, unstaking, or similar periods imposed by the Stakeable Crypto Asset protocol, custodian or Validator, where such Stakeable Crypto Assets will not be accessible to the client or will be accessible only after payment of additional fees or penalties or forfeiture of any rewards (Lock-up Periods); and

 

(h)       how rewards are calculated on the staked Stakeable Crypto Assets, including any fees charged by the Filer or any third party, how rewards are paid out to clients, and any associated risks.

 

12.       Immediately before each time that a client allocates Stakeable Crypto Assets to be staked under the Staking Services, the Filer requires the client to acknowledge the risks of staking Stakeable Crypto Assets as may be applicable to the particular Staking Services or each particular Stakeable Crypto Asset, including, but not limited to:

 

(a)       that the staked Stakeable Crypto Asset may be subject to a Lock-up Period and, consequently, the client may not be able to sell or withdraw their Stakeable Crypto Asset for a predetermined or unknown period of time, with details of any known period, if applicable;

 

(b)       that given the volatility of Crypto Assets, the value of a client’s staked Stakeable Crypto Asset when they are able to sell or withdraw, and the value of any Stakeable Crypto Asset earned through staking, may be significantly less than the current value;

 

(c)        how rewards will be calculated and paid out to clients and any risks inherent in the calculation and payout of any rewards;

 

(d)       that there is no guarantee that the client will receive any rewards on the staked Stakeable Crypto Asset, and that past rewards are not indicative of expected future rewards;

 

(e)       whether rewards may be changed at the discretion of the Filer;

 

(f)         unless the Filer guarantees any Stakeable Crypto Assets lost to slashing, that the client may lose all or a portion of the client’s staked Stakeable Crypto Assets if the Validator does not perform as required by the network;

 

(g)       if the Filer offers a guarantee to prevent loss of any Stakeable Crypto Assets arising from the Staking Services, including due to slashing, any limits on that guarantee and requirements for a client to claim under the guarantee; and

 

(h)       that additional risks can be found in the Risk Statement and Crypto Asset Statement, including the names and other information regarding the Validators and information regarding Lock-up Periods and rewards, with a link to the Risk Statement and Crypto Asset Statement.

 

13.       Immediately before each time a client buys or deposits Stakeable Crypto Assets that are automatically staked pursuant to an existing agreement by the client to the Staking Services, the Filer provides prominent disclosure to the client that the Stakeable Crypto Asset it is about to buy or deposit will be automatically staked.

 

14.       The Filer will promptly update the Risk Statement and each Crypto Asset Statement to reflect any material changes to the disclosure or include any material risks that may develop with respect to the Staking Services and/or Stakeable Crypto Assets.

 

15.       In the event of any update to the Risk Statement, for each existing client that has agreed to the Staking Services, the Filer will promptly notify the client of the update and deliver to them a copy of the updated Risk Statement.

 

16. In the event of any update to a Crypto Asset Statement, for each existing client that has agreed to the Staking Services in respect of the Stakeable Crypto Asset for which the Crypto Asset Statement was updated, the Filer will promptly notify the client of the update and deliver to the client a copy of the updated Crypto Asset Statement.

 

17. The Filer and the Custodians remain in possession, custody and control of the staked Stakeable Crypto Assets at all times.

 

18.       The Filer holds the staked Stakeable Crypto Assets for its clients in one or more omnibus staking wallets in the name of the Filer for the benefit of the Filer’s clients with the Custodians and the staked Stakeable Crypto Assets are held separate and distinct from (i) the assets of the Filer, the Custodians and the Custodians’ other clients; and (ii) the Crypto Assets held for its clients that have not agreed to staking those specific Crypto Assets.

 

19.       The Filer has established policies and procedures that manage and mitigate custodial risks for staked Stakeable Crypto Assets, including but not limited to, an effective system of controls and supervision to safeguard the staked Stakeable Crypto Assets.

 

20.       If the Filer permits clients to remove Stakeable Crypto Assets from the Staking Services prior to the expiry of any Lock-up Period, the Filer establishes and applies appropriate liquidity management policies and procedures to fulfill withdrawal requests made, which may include using the Stakeable Crypto Assets it holds in inventory, setting aside cash for the purpose of purchasing such inventory, and/or entering into agreements with its Liquidity Providers that permit the Filer to purchase any required Crypto Assets. The Filer holds Stakeable Crypto Assets in trust for its clients and will not use Stakeable Crypto Assets of those clients who have not agreed to the Staking Services for fulfilling such withdrawal requests.

 

21.       If the Filer provides a guarantee to clients from some or all of the risks related to the Staking Services, the Filer has established, and will maintain and apply, policies and procedures to address any risks arising from such guarantee.

 

22.       In the event of bankruptcy or insolvency of the Filer, the Filer will assume and will not pass to clients any losses arising from slashing or other penalties arising from the performance or non-performance of the Validator.

 

23.       The Filer monitors its Validators for downtime, jailing and slashing events and takes any appropriate action to protect Stakeable Crypto Assets staked by clients.

 

24.       The Filer has established and applies policies and procedures to address how staking rewards, fees and losses will be calculated and allocated to clients that have staked Stakeable Crypto Assets under the Staking Services.

 

25.       The Filer regularly and promptly determines the amount of staking rewards earned by each client that has staked Stakeable Crypto Assets under the Staking Services and distributes each client’s staking rewards to the client promptly after they are made available to the Filer.

 

26.       The Filer clearly discloses the fees charged by the Filer for the Staking Services and provides a clear calculation of the rewards earned by each client that agrees to the Staking Services.

 

Appendix D – Data Reporting

 

1.         Commencing with the quarter ending June 30, 2023, the Filer will deliver the following information to the Principal Regulator and each of the Coordinated Review Decision Makers in an agreed form and manner specified by the Principal Regulator and each of the Coordinated Review Decision Makers with respect to Clients residing in the Jurisdiction of such Coordinated Review Decision Maker, within 30 days of the end of each March, June, September and December:

 

(a)      aggregate reporting of activity conducted pursuant to the Platform’s operations that will include the following:

i.          number of Client Accounts opened each month in the quarter;

ii.        number of Client Accounts frozen or closed each month in the quarter;

iii.       number of Client Account applications rejected by the platform each month in the quarter based on the account appropriateness factors described in paragraph 35(b);

iv.       number of trades each month in the quarter;

v.        average value of the trades in each month in the quarter;

vi.       number of Client Accounts with a net acquisition cost greater than $30,000 of Crypto Assets at the end of each month in the quarter;

vii.      number of Client Accounts that in the preceding 12 months, excluding Specified Crypto Assets, exceeded a net acquisition cost of $30,000 at the end of each month in the quarter;

viii.     number of Client Accounts at the end of each month in the quarter;

ix.       number of Client Accounts with no trades during the quarter;

x.        number of Client Accounts that have not been funded at the end of each month in the quarter; and

xi.       number of Client Accounts that hold a positive amount of Crypto Assets at end of each month in the quarter; and

xii.      number of Client Accounts that exceeded their Client Limit at the end of each month in the quarter.

 

(b)      the details of any client complaints received by the Filer during the calendar quarter and how such complaints were addressed;

 

(c)       a listing of all blockchain addresses, except for deposit addresses, that hold Crypto Assets on behalf of Clients, including all hot and cold wallets;

 

(d)      the details of any fraudulent activity or cybersecurity incidents on the Platform during the calendar quarter, any resulting harms and effects on clients, and the corrective measures taken by the Filer to remediate such activity or incident and prevent similar activities or incidents from occurring in the future; and

 

(e)      the details of the transaction volume per Liquidity Provider, per Crypto Asset during the quarter.

 

2.         The Filer will deliver to the Principal Regulator and each of the Coordinated Review Decision Makers, in an agreed form and manner specified by the Principal Regulator and each of the Coordinated Review Decision Makers, a report that includes the anonymized account-level data for the Platform’s operations for each client residing in the Jurisdiction of such Coordinated Review Decision Maker, within 30 days of the end of each March, June, September and December for data elements outlined in Appendix E.

 

APPENDIX E

 

Data Element Definitions, Formats and Allowable Values

 

Number	Data Element Name	Definition for Data Element[1]	Format	Values	Example
Data Elements Related to each Unique Client
1	Unique Client Identifier	Alphanumeric code that uniquely identifies a customer.	Varchar(72)	An internal client identifier code assigned by the CTP to the client. The identifier must be unique to the client.	ABC1234
2	Unique Account Identifier	Alphanumeric code that uniquely identifies an account.	Varchar(72)	A unique internal identifier code which pertains to the customer’s account. There may be more than one Unique Account Identifier linked to a Unique Client Identifier.	ABC1234
3	Jurisdiction	The Province or Territory where the client, head office or principal place of business is, or under which laws the client is organized, or if an individual, their principal place of residence.	Varchar(5)	Jurisdiction where the client is located using ISO 3166-2 - See the following link for more details on the ISO standard for Canadian jurisdictions codes. https://www.iso.org/obp/ui/#iso:code:3166:CA	CA-ON
Data Elements Related to each Unique Account
4	Account Open Date	Date the account was opened and approved to trade.	YYYY-MM- DD, based on UTC.	Any valid date based on ISO 8601 date format.	2022-10-27
5	Cumulative Realized Gains/Losses	Cumulative Realized Gains/Losses from purchases, sales, deposits, withdrawals and transfers in and out, since the account was opened as of the end of the reporting period.	Num(25,0)	Any value rounded to the nearest dollar in CAD. Use the market value at the time of transfers in, transfers out, deposits and withdrawals of the Digital Token to determine the cost basis or the realized gain or loss.	205333
6	Unrealized Gains/Losses	Unrealized Gains/Losses from purchases, deposits and transfers in as of the end of the reporting period.	Num(25,0)	Any value rounded to the nearest dollar in CAD. Use the market value at the time of transfers in or deposits of the Digital Token to determine the cost basis.	-30944
7	Digital Token Identifier	Alphanumeric code that uniquely identifies the Digital Token held in the account.	Char(9)	Digital Token Identifier as defined by ISO 24165. See the following link for more details on the ISO standard for Digital Token Identifiers. https://dtif.org/	4H95J0R2X
Data Elements Related to each Digital Token Identifier Held in each Account
8	Quantity Bought	Number of units of the Digital Token bought in the account during the reporting period.	Num(31,18)	Any value greater than or equal to zero up to a maximum number of 18 decimal places.	4358.326
9	Number of Buy Trans- actions	Number of transactions associated with the Quantity Bought during the reporting period.	Num(25,0)	Any value greater than or equal to zero.	400
10	Quantity Sold	Number of units of the Digital Token sold in the account during the reporting period.	Num(31,18)	Any value greater than or equal to zero up to a maximum number of 18 decimal places.	125
11	Number of Sell Transactions	Number of transactions associated with the Quantity Sold during the reporting period.	Num(25,0)	Any value greater than or equal to zero.	3325
12	Quantity Transferred In	Number of units of the Digital Token transferred into the account during the reporting period.	Num(31,18)	Any value greater than or equal to zero up to a maximum number of 18 decimal places.	10.928606
13	Number of Transactions from Transfers In	Number of transactions associated with the quantity transferred into the account during the reporting period.	Num(25,0)	Any value greater than or equal to zero.	3
14	Quantity Transferred Out	Number of units of the Digital Token transferred out of the account during the reporting period.	Num(31,18)	Any value greater than or equal to zero up to a maximum number of 18 decimal places.	603
15	Number of Transactions from Transfers Out	Number of transactions associated with the quantity transferred out of the account during the reporting period.	Num(25,0)	Any value greater than or equal to zero.	45
16	Quantity Held	Number of units of the Digital Token held in the account as of the end of the reporting period.	Num(31,18)	Any value greater than or equal to zero up to a maximum number of 18 decimal places.	3641.25461
17	Value of Digital To- ken Held	Value of the Digital Token held as of the end of the reporting period.	Num(25,0)	Any value greater than or equal to zero rounded to the nearest dollar in CAD. Use the unit price of the Digital Token as of the last business day of the reporting period multiplied by the quantity held as reported in (16).	45177788
18	Client Limit	The Client Limit established on each account.	Num(25,2)	Any value greater than or equal to zero rounded to the nearest dollar in CAD, or if a percentage, in decimal format.	0.50
19	Client Limit Type	The type of limit as reported in (18).	Char(3)	AMT (amount) or PER (percent).	PER