BitBuy, Kraken, Kucoin, Shopify, Wealthsimple, and Helcim are all recognized brands or entities in the digital transactions and crypto space or industry in Canada and the rest of the world.  

The world is embracing cryptocurrencies at an unprecedented rate. Global crypto ownership has surged from 432 million to 580 million in 2023. Canada is not left out of this global trend. As crypto and digital transaction platforms expand in Canada, more laws are emerging to tackle irregularities, loopholes, and features that may easily be an entry point for financial crime and illegal financial manipulations. Canada's regulatory bodies are also stepping up to the task of mandating compliance and ethics for these platforms.

This article provides a basic compliance guide for Digital transactions and crypto platforms in Canada. 

 

 Why Do Digital Transactions and Crypto Businesses Need to be Compliant?

The rapid growth of the digital transactions and cryptocurrencies industry allows for the existence of beneficial opportunities for businesses and consumers. However, this growth also brings various risks and regulatory challenges. Compliance in the digital transactions and cryptocurrencies industry is necessary for a number of significant reasons, including;

 

1. Conformity To Legal and Regulatory Obligations

Inability to comply with regulatory requirements can lead to serious consequences, including fines, sanctions, and even the suspension of business operations. Regulatory bodies like the Canadian Securities Administrators (CSA) and the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) have strict guidelines that businesses must follow.

 

2. Evolving Regulations and Laws 

Compliance regulations for cryptocurrencies are complex and continuously change to adapt to new threats and innovations. Compliance helps businesses manage these changes and ensure that they do not break the law. This includes adhering to anti-money laundering (AML) laws, counter-terrorist financing (CTF) measures, and securities regulations.

 

3. To Enhance Customer Trust and Confidence

Consumers will be more likely to patronize businesses they trust. Compliance with regulations demonstrates a commitment to transparency and integrity, which enhances consumer confidence. Trust is particularly important in the crypto space, where scepticism and misunderstanding are common.

 

4. To Attract Investment And Partners 

Institutional investors and partners often require stringent compliance measures before they engage with a business. Ensuring compliance can open doors to new investment opportunities and strategic partnerships.

 

5. To Fraud and Illicit Activities

Compliance measures, such as robust Know Your Customer (KYC) procedures and transaction monitoring, help prevent fraud and protect the business and its customers. This is vital in a sector often targeted by cybercriminals.
 

6. To Fight Money Laundering and Terrorism Financing

Compliance with AML and CTF regulations is essential to prevent the misuse of cryptocurrencies for activities outside of the law. This not only protects the business from legal consequences but also contributes to global efforts against financial crimes.

 

7. To Foster A Stable Market Or Business Climate

By complying with existing regulations, businesses contribute to the development of clearer and more effective regulatory frameworks. This, in turn, fosters a more predictable and stable market environment.

 

8. To Protect Consumer Rights

Compliance ensures that consumers receive accurate and clear information about their transactions, including any associated risks and costs. This transparency is essential for protecting consumer rights and promoting informed decision-making.

 

9. To Preserve Ethics

Regulatory compliance creates a suitable environment for fair business practices, Which include preventing exploitation and ensuring that consumers are treated ethically and fairly.


 

The Regulatory Landscape for Digital Transactions And Crypto Entities In Canada 

 

The regulatory environment for digital transactions and cryptocurrencies in Canada involves multiple regulatory bodies and a variety of laws aimed at ensuring the integrity of the financial system and protecting Canadian consumers in the digital and crypto space. 

The key digital transactions and crypto compliance businesses in Canada include:

 

1. Securities Regulations

The Canadian Securities Administrators (CSA) is the oversight or regulatory body for this. The CSA is an umbrella organization comprising Canada's provincial and territorial securities regulators. It provides a framework for securities regulation, including the oversight of cryptocurrency-related activities.

The CSA issues guidelines on when cryptocurrencies and related activities might be considered securities. Businesses dealing with such assets may need to register and comply with securities laws, including disclosure requirements and investor protection measures.

Crypto trading platforms may be mandated to register as securities dealers and meet specific compliance standards, including segregation of assets, insurance, and transparent trading practices.

 

2. Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) Regulations

Financial Transactions and Reports Analysis Centre of Canada (FINTRAC)

FINTRAC is Canada's financial intelligence unit that is responsible for AML and CTF oversight. It requires businesses involved in virtual currencies to comply with several requirements that include; 

  •  Crypto exchanges and payment processors must register with FINTRAC.
  •  They must implement robust Know Your Customer (KYC) procedures to verify the identity of clients.
  •  They must maintain detailed records of transactions and customer information.
  •  They must report large transactions and any suspicious activities to FINTRAC promptly.

 

3. Taxation

The Canada Revenue Agency (CRA) has specific guidelines on the taxation of cryptocurrencies, considering them as commodities and treating transactions as barter transactions. Any income generated from crypto activities must be reported. Profits made from the sale of cryptocurrencies are subject to capital gains tax, and Goods and Services Tax (GST) or Harmonized Sales Tax (HST) may apply to transactions involving cryptocurrencies.
 

4. Competition Bureau

The Competition Bureau covers consumer protection; the oversight body ensures that businesses provide clear and accurate information about their products and services, including those related to cryptocurrencies. Businesses must disclose all relevant information about their crypto products, including risks and fees.

The competition prohibits deceptive marketing practices and ensures that consumers are treated fairly.

 

5. Privacy and Data Protection

The Office of the Privacy Commissioner of Canada (OPC) oversees compliance with privacy laws, such as the Personal Information Protection and Electronic Documents Act (PIPEDA). Businesses must protect their clients' personal data, making sure it is collected, used, and disclosed in compliance with PIPEDA. Businesses are also obligated to obtain clear and direct consent from clients before the collection and use of their personal data.

 

6. Office of the Superintendent of Financial Institutions (OSFI)

This regulatory authority, the Office of the Superintendent of Financial Institutions (OSFI), oversees federally regulated financial institutions and ensures their stability and compliance with relevant laws. Crypto businesses that partner with banks or other financial institutions must comply with OSFI regulations, ensuring that these partnerships are secure and compliant with financial stability standards.

 

7. The CSA Guidance on Stablecoins

In February 2023, The Canadian Securities Administrators (CSA) issued guidance on the use of stablecoins, categorizing many as securities and requiring their issuers to comply with securities laws. The Canadian Securities Administrators (CSA) stressed the necessity for issuers to maintain reserves with qualified custodians and to make governance and reserve information publicly available.

 

8. The FINTRAC Virtual Currency Travel Rule

As of June 2021, FINTRAC requires virtual currency transactions to include specific or covert confirmatory information when funds are transferred internationally, aligning with the FATF Travel Rule. The travel rule extensively covers avenues that may be used to transfer money internationally under the covers, from casinos to Foreign money services businesses (FMSBs), to Money services businesses (MSBs), as well as financial institutions.

 

Compliance Tips for Digital Transactions and Crypto Entities In Canada

 

1. Stay Updated

Digital Transactions and Crypto Entities In Canada should stay informed of the latest regulatory changes and guidelines from relevant authorities such as the Canadian Securities Administrators (CSA) and the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

2. Engage Legal Experts

To ensure business practices align with current laws, it is best to consult with legal experts specializing in cryptocurrency and financial regulations.

 

3. Implement Robust AML and KYC Procedures

Digital Transactions and Crypto Entities In Canada should establish thorough KYC procedures to verify the identity of their clients, including collecting and verifying personal information. It is helpful and rational to utilize efficient Regtech solutions. YouVerify offers a wide range of digital KYC products that can help Digital Transactions and Crypto Entities In Canada verify the identity of their customers.

They should develop and maintain AML policies to monitor transactions for suspicious activity and report it to FINTRAC as required.

It is also helpful and important to continuously monitor transactions and customer behavior to detect and prevent fraudulent activities in crypto.

 

4. Ensure Accurate Record-Keeping

Concerned people should keep detailed records of all transactions, including dates, amounts, and parties involved. Accurate records of customer information collected during the KYC process should also be safeguarded and kept.

Also, it is important to ensure that established record-keeping practices create clear audit trails to facilitate regulatory reviews and audits.

 

5. Entities Should Comply with Taxation Requirements

All income generated from cryptocurrency transactions should be acutely reported to the Canada Revenue Agency (CRA). Entities should ensure that transactions involving cryptocurrencies comply with Goods and Services Tax (GST) or Harmonized Sales Tax (HST) regulations.

 

6. Data Privacy and Security

Digital Transactions and Crypto Entities In Canada should comply with the Personal Information Protection and Electronic Documents Act (PIPEDA) to protect customer data. They should also ensure that clients give explicit consent for the collection and use of their personal data.

 

7. Establish Regular Compliance Training and Culture

Regularly training employees on compliance requirements, AML/KYC procedures, and data protection practices is a helpful company policy to support complaint efforts. This will also help create and promote a culture of compliance within the organization, promoting the importance of following legal and regulatory standards.                

                          

Bottom Line 

It can be difficult for digital and crypto platforms to survive and sustain compliance in Canada. However, Youverify's suite of compliance software products is designed to aid companies of all types and sizes in their compliance efforts seamlessly. 

Digital and crypto platforms can utilize Youverify's suite of compliance software solutions to cater to their compliance needs. To get started, book a demo.