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Regulator Survey: 5% of the Ontario Public Hold Crypto Assets

The securities regulator in Canada’s Ontario province raised concerns in a report that public knowledge of cryptocurrency appears to be lacking despite a growing interest in the nascent technology among local residents.

The Ontario Securities Commission (OSC) published a survey result on Thursday that sampled over 2,500 Ontario residents aged over 18 in March regarding their awareness and knowledge of cryptocurrency and initial coin offerings.

The survey found that five percent of Ontarians currently hold cryptocurrency assets such as bitcoin and ethereum. While the percentage appears to be relatively small, the OSC said the figure still translates to over 500,000 residents in the province – a number that is “sufficient to concern the OSC as a securities regulatory authority.”

Among the surveyed cryptocurrency holders, nearly half of them bought the assets because of their enthusiasm for the technology while 42 percent did so for speculation with a purpose to make profits by selling at a higher price.

Adding to the OSC’s concerns is a result that shows while the public are largely aware of cryptocurrency such as bitcoin, yet most of them do not understand basics of the technology.

For instance, the survey shows that over 80 percent of all respondents indicated they have heard of bitcoin. But as the OSC presented six statements about bitcoin to ask respondents to verify their correctness, about 30 percent can answer four or more of the questions correctly. And, only three percent got all the questions right.

Meanwhile, for respondents who currently hold cryptocurrency assets, the survey said around 15 percent of them answered the six questions correctly.

In addition, the survey reported that 1.5 percent of the respondents said they participated in an initial coin offering, meaning over 170,000 Ontarians bought cryptocurrency assets through a token sale before.

In fact, the report said around 10 percent of the respondents expressed they had been solicited by a token offering scheme. However, the OSC raised concerns that a majority of the respondents who had heard of cryptocurrency before taking the survey (67 percent) do not know who regulates ICOs and 18 percent of them believed ICOs are not regulated.

The survey is the OSC’s latest work to gauge public knowledge of the cryptocurrency industry as the regulator is beefing up efforts to monitor token sale activities that target at Ontarian residents.

It also comes just a month after the regulator has joined the North American Securities Administrators Association (NASAA) to start working with counterparts in the U.S. to scrutinize ICOs projects.

Ontario map image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Regulator Survey Prompts Concerns Over Public Knowledge of Crypto

The securities regulator in Canada’s Ontario province has raised concerns that public knowledge of cryptocurrency appears to be lacking, despite a growing interest in the nascent technology among local residents.

The Ontario Securities Commission (OSC) published the results of a survey on Thursday that asked over 2,500 Ontario residents aged 18 or older about their awareness and knowledge of cryptocurrency and initial coin offerings.

The research, which took place in March, found that five percent of Ontarians currently hold cryptocurrency assets such as bitcoin and ethereum. While the percentage appears to be relatively small, the OSC said the figure still translates to over 500,000 residents in the province – a number that is “sufficient to concern the OSC as a securities regulatory authority.”

Among the surveyed cryptocurrency holders, nearly half of them bought the assets because of their enthusiasm for the technology, while 42 percent did so in the hope of making profits by selling at a higher price.

Adding to the OSC’s concerns is a result showing that, while the public are largely aware of cryptocurrencies such as bitcoin, most of them do not understand basics of the technology.

For instance, the survey shows that over 80 percent of respondents indicated they have heard of bitcoin. But when asked six questions about bitcoin, only about 30 percent could answer four or more correctly, and only three percent made no mistakes at all.

Further, for respondents who currently hold cryptocurrency assets, the survey said around 15 percent of them answered the six questions correctly.

The survey also indicated that 1.5 percent of the respondents said they had participated in an initial coin offering, meaning over 170,000 Ontarians had bought crypto assets through a token sale. The report added that around 10 percent of respondents had been solicited by a token offering scheme.

The OSC raised concerns that a majority of the respondents who had heard of cryptocurrency before taking the survey (67 percent) did not know who regulates ICOs and 18 percent of them believed ICOs are not regulated.

The survey is the OSC’s latest effort to gauge public knowledge of the cryptocurrency industry as the regulator beefs up efforts to monitor token sales targeting Ontarian residents.

It also comes just a month after the regulator joined the North American Securities Administrators Association (NASAA) to start working with counterparts in the U.S. to scrutinize ICOs projects.

Ontario map image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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ICO Promoters Can Expect Canada to Be as Tough as the US

Matthew Burgoyne is an associate and head of the fintech practice group, and Ryan Franzen is partner for securities and fintech, at McLeod Law in Calgary, Alberta.


Unlike in the United States, Canada’s securities laws fall into the domain of the provinces. Arguably no area of provincial law has seen more activity as a result of the crypto boom than securities law, mainly due to the advent of initial coin offerings (ICOs).

On Aug. 24 of last year the Canadian Securities Administrators (an umbrella organization of Canada’s provincial securities regulators) published CSA Staff Notice 46-307 on cryptocurrency offerings, in which the authors posit that “[A] coin/token may still be a ‘security’ as defined in securities legislation of the jurisdictions of Canada. Businesses should complete an analysis on whether a security is involved.”

The Staff Notice goes on to confirm that Canada, through the seminal Pacific Coast Coin Exchange v. Ontario Securities Commission decision, has adopted the United States’ Howey Test in determining whether a particular investment constitutes an investment contract and therefore a security.

Although the authors of the Staff Notice admit that “Every ICO/ITO is unique and must be assessed on its own characteristics,” we believe provincial securities regulators in Canada wouldn’t take a radically different approach than the U.S. Securities Exchange Commission in analyzing whether tokens and coins are securities.  

We believe the provincial securities regulators in Canada would be as equally inquisitive and systematic as the SEC has reportedly been in its recent analysis of Simple Agreement for Future Tokens (SAFT) contract based coin and token offerings.  Indeed there is evidence that similar investigations have begun in Canada.

An issuer selling tokens in an ICO to Canadians would certainly have its work cut out for it in attempting to argue it was in fact selling utilities, commodities or licenses to use some sort of yet-to-be developed platform.  

There are a number of examples in Canadian case law where issuers were attempting to sell “utilities” or something similar to modern day tokens and coins, where the court simply didn’t buy the argument.

The Furtak decision

Take for example the 2016 Ontario Securities Commission (“OSC”) decision of Furtak.  The issuers in this case were selling licenses to use relatively complex financial software agreements which granted users the right to use the financial software to trade futures contracts.  

However, as part of the arrangement, the “users” would then contract with an affiliate of the issuer to operate the software. Users did not share in any profits or losses as a result of the use of the trading software but received certain trade report fees. In effect, users paid a licensing fee in expectation of generating a return through no effort of their own.

The issue for the securities regulators was, were the licenses investment contracts or something else, such as a set of contracts that created a business? The OSC ultimately found that the licenses were investment contracts.  

In arriving at its decision, it noted that:

“[T]he salient feature of a securities transaction is the public solicitation of venture capital to be used in a business enterprise…this subjection of the investor’s money to the risks of an enterprise over which he exercise no managerial control is the basic economic reality of a security transaction.”

The nature of the business enterprise can vary to a large extent. As the OSC noted, investment contracts have been found in Canadian and U.S. cases in arrangements as diverse as the use of solar panels, in proprietary software that would generate profits based on volatility, in fractional interests in death benefits of life insurance policies, in dental services sold by the promoter under sales agency agreements, in arrangements to share in the ownership and revenue from blood alcohol testing machines in pubs and even in payphones (remember those?).

The fact is, existing Canadian securities laws would probably already categorize most ICO tokens and coins as investment contracts, no matter how novel and supposedly unique they are. Some would argue the courts have seen it all before.

Provincial regulators in Canada have at least shown a willingness to work with crypto entrepreneurs, but to date the only published examples we have of where this cooperation occurred was when those entrepreneurs accepted the fact that their coins were securities and proceeded to move forward with the regulators on that basis. Even then the relief granted from securities laws was limited at best.

Limited relief

Around the time of the publication of the OSC Staff Notice, a number of provincial securities regulators granted limited relief from dealer registration requirements under securities laws where coins issued in an ICO were offered as securities.

For example, in August 2017, the responsible-investing firm Impak Finance Inc. received limited relief from certain registration requirements in conjunction with its ICO by the Autorité des marchés financiers in Quebec. Two months later, the OSC granted similar relief in conjunction with an ICO by Tokenfunder Inc., a company established to, among other things, facilitate the issuance of third party coins and tokens.

In our opinion, the two aforementioned examples demonstrate that where coins are issued in an ICO not only might they be treated as securities, but if exemptive relief from some securities laws is granted by a securities regulator, the relief won’t be dramatic or earth shattering.

The parameters that have accompanied the exemptive relief in these cases appear excessively obstructive to some in the crypto community, and may simply serve to highlight the scope of the jurisdiction of the securities regulators and the difficulties which arise given the application of securities laws.

For example, in both cases, each purchaser in the ICO is prohibited from purchasing more than $2,500 worth of coins (unless detailed know-your-client and suitability reviews on the purchaser are conducted) and Impak and Tokenfunder are restricted from listing and trading their coins on any cryptocurrency exchange unless prior approval is obtained from their respective provincial securities regulators.

Further, the coins in each ICO are subject to resale restrictions under securities law which impose a fairly stringent hold period where further trading and transfer of the coins are prohibited indefinitely (unless certain rigid criteria are met). This may be frustrating to some as certain coins and tokens need to be freely traded on the blockchain by many different participants in order to fulfill their intended purpose.

Despite the exemptive relief from dealer registration requirements provided by the securities regulators in these decisions, issuers should bear in mind that under applicable Canadian securities laws a person is only required to register as a dealer if they are engaging in or holding themselves out as engaging in the business of dealing in securities. Consequently, if an issuer is not “in the business”, then registration is not required, nor would exemptive relief from dealer registration requirements be necessary.

Simply because a corporation has issued shares in an initial public offering (IPO) to raise capital to fund its business, and those shares are listed on a stock exchange, does not mean the corporation is in the business of dealing in securities.

By extension, simply because a coin is issued in an ICO and subsequently traded on the blockchain does not necessarily mean the issuer of the coin is in the business of dealing in securities. In fact, unlike shares of a corporation, at the time a coin is traded on the blockchain, it may have its intended utility and essentially lost any security characteristic it initially had.

All told, ICO promoters should exercise caution in Canada when attempting to market a utility token without consideration of securities laws.  

Further, if you’ve come to accept that your token is an investment contract, then based on these decisions, expect to be treated like any other issuer of securities.

The authors would like to acknowledge Amanpreet Sran for her research, contributions and assistance with this article.

Canadian flag image via Shutterstock.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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ICOs Can Pose 'Fundamental Issues' Says Ontario Securities Regulator

Ontario’s securities regulator will prioritize work on cryptocurrencies and initial coin offerings in the coming year.

In a draft “Statement of Priorities” published on March 29, the Ontario Securities Commission (OSC) flagged token sales and cryptocurrency markets as two areas in which it would push to better understand – and regulate – during the next 12 months. The OSC said it will accept feedback on its document until the end of May.

The commission cited the development of cryptocurrencies in particular as an innovative tool in the financial sector, but also noted that it carried certain market risks, stating in the document:

“This innovation is driving more complexity in financial markets and products and creating a risk that consumers may not understand what they are buying. Initial offerings of digital currency and similar instruments can raise fundamental issues about the scope of securities regulation, at the same time that they present significant investor protection issues.”

Despite this warning, the OSC took it as a “measure of success” that gaps in cryptocurrency regulation “are identified and addressed in a timely manner with minimal impacts on investors or disruptions to capital markets.”

The commission added that the province is “viewed as a fintech innovation hub” due to its support for new forms of investment – possibly referring to the TokenFunder ICO, which it approved last October.

In the document, the OSC committed to providing enhanced guidance on what it considers a security, as well as to working with cryptocurrency exchanges to discuss developments in the industry. The regulator further promises to conduct “ongoing monitoring and reviews” of cryptocurrency issuers.

Canada’s situation is unusual, in that the country lacks an overarching national securities regulator, despite a decades-long push to establish one from some quarters.

Securities regulation is determined at the provincial level, making densely-populated Ontario’s regulator one of the most powerful. Quebec’s securities regulator has also emerged as a force in Canada’s cryptocurrency market – last year, it became the first in the country to give the go-ahead to an ICO.

Canadian flags image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Ontario Securities Regulator Approves TokenFunder ICO

The Ontario Securities Commission (OSC) has given its blessing to an initial coin offering set to launch at the start of next month.

In a decision posted online Oct. 23, the OSC approved the token sale organized by TokenFunder, which is developing a platform for projects aiming to raise funds through coin sales of their own. The company is aiming to raise roughly $10 million, with the sale set to commence on Nov. 1.

Though not the first ICO in Canada to receive the blessing of a regulator, it is the first for the province of Ontario. It’s also one that comes months after the OSC issued a public statement on the blockchain use case, declaring that that some offerings would trigger the agency’s oversight.

In a statement to CoinDesk, the agency struck an optimistic tone about the approval, remarking:

“It is important that we continue to foster innovative new ways to raise capital and invest, and this announcement is a testament to the dedicated support we are providing in this space.”

As part of the legal framework surrounding the campaign, TokenFunder will be treating its coin offering as a security. Similarly, the token management platform the company will launch will be classifying future offerings as securities.

TokenFunder follows Quebec-based Impak Finance as one of the first companies in Canada to launch an ICO under the oversight of a state regulator.

Canadian flag on keyboard image via Shutterstock

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