Canada is set for tightened regulatory oversight as the national government instructed all pension funds regulated by federal financial institutions to declare their crypto-assets exposure in their filings to the Office of the Superintendent of Financial Institutions (OSFI).
Canadian Pension Funds Should Declare Crypto Exposure
A critical inclusion in the government 2023 budget is the OSFI mandate to consult with financial institutions on how they would publicly declare exposure to crypto assets. The move by Ottawa seeks to deploy stricter regulatory oversight towards the volatile investment sector.
The announcement featured in the updated 2023 budget plan where the government prioritizes safeguards towards the Canadians’ retirements. In particular, it challenges all pension funds operating as federally regulated institutions to capture their crypto-asset exposures to the OSFI.
Joint-Coordination with Provinces to Deploy Precautionary Disclosures
The budget plan restates the federal government’s devotion to jointly coordinating initiatives with territories and provinces in obligating large pension plans to inform Canadians of the extent of their crypto exposure. Doing so would inform the retiring Canadians about the susceptibility of their savings to risky investments.
The move by the Canadian government is illustrative of a precautionary measure to avoid replicating instances when pension funds bear huge exposure to the crypto sector.
The measures follow the series of high-profile bankruptcies witnessed in 2022 led by FTX exchange, Three Arrows Capital, Terra, and Celsius Network. Hot on the heels of the 2022 bankruptcy is the sudden collapse of Signature Bank, Silvergate Capital Corp., and Silicon Valley Bank, with all commanding significant exposure to volatile crypto assets.
Safeguarding Canadian Pension Plans from Suffering Repeat Burns Through Write-Offs
The decision to tighten regulatory oversight is timely given that several Canadian pension funds have suffered the burn of committing resources in volatile crypto investments. In 2022, Caisse de Dépôt et Placement du Québec regretted writing off the $150 million it invested in Celsius Network.
Besides the Quebec-based pension plan, Ontario Teachers’ Pension Plan declared intentions to write down $95 million invested in the collapsed FTX exchange. While the Ontario-based commands a US$250 billion assets base, the millions lost when the Sam Bankman-led empire collapsed is a significant savings fortune to lose.
With the understanding that crypto assets are high-risk investments, OSFI is assuming a critical role by formulating disclosure guidelines to save Canadians’ hard-earned savings. Also, public disclosure constitutes a component of tiger regulatory oversight formulated to help secure the Canadian financial sector.
The revised 2023 budget plan outlines the need for the government to assume an active role through orders that address gaps existing in protecting consumers and unearthing risks to the financial system.
Canada Reinforces Stricter Compliance Requirements for Crypto Trading Platforms
The approach by Canada targeting pension plans replicates previous initiatives to tighten oversight around the crypto sector. In February, the Canadian Securities Administrator (CSA) unveiled plans to embrace stricter compliance requirements for crypto exchanges seeking operating licenses.
Previous communication by CSA revised the pre-registration process by giving a 30-day notice for crypto operators to comply. The market regulator obliges crypto exchanges to commit to honoring the enhanced rules, particularly by segregating assets held under custody from the platforms’ funds.
The revised stance by CSA aligned with the past pronouncements made by chair Stan Magidson on the need to regulate the margin-based sale of stablecoins. The market regulator restated the prohibition of crypto operators without seeking CSA registration and operation permits.
Magidson, who also serves in the Alberta Securities Commission, lamented that recent insolvencies that hit crypto trading platforms in 2022 illustrated the tremendous risks inherent in crypto assets. The risk aggravates when unregistered crypto platforms operate outside Canada’s jurisdiction.
The approach adopted by the Canadian regulator portrays a devotion to rein control over fraudulent crypto-related activities. As such, CSA directed the unregistered crypto trading platforms to comply with the revised pre-registration undertaking. CSA restated that crypto trading platforms are unwilling to comply with the PRU to offload Canadian customers and immediately block users from the jurisdiction.
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