According to recent CSA Staff Notice 46-307 Cryptocurrency Offerings, a clear definition is given, about when one may considers an ICO is selling “securities” under the laws. This Notice is what now all Canadians Regulators will stand by.
This Notice deals with what types of ICO are selling secrurities, or not. According to the Notice:
Staff is aware of businesses marketing their coins/tokens as software products, taking the position that the coins/tokens are not subject to securities laws. However, in many cases, when the totality of the offering or arrangement is considered, the coins/tokens should properly be considered securities. In assessing whether or not securities laws apply, we will consider substance over form.
Although a new technology is involved, and what is being sold is referred to as a coin/token instead of a share, stock or equity, 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. Legal and/or other professional advice may be useful in making this determination.
Accordingly, each case will be assessed on its own characteristics.
The Notice will take the following test:
In determining whether or not an investment contract exists, businesses should apply the following four-prong test. Namely, does the ICO/ITO involve:
1. An investment of money
2. In a common enterprise
3. With the expectation of profit
4. To come significantly from the efforts of others
This is only part of the Notice. Exchanges, Crypocurrency investment funds are also targeted. A set of new definitions is given.
One of the main issue remain: Should ICO file for registration and have a propestus ? The good news are that the CSA says:
The CSA Regulatory Sandbox is an initiative of the CSA to support fintech businesses seeking to offer innovative products, services and applications in Canada. It allows firms to register and/or obtain exemptive relief from securities law requirements, under a faster and more flexible process than through a standard application, in order to test their products, services and applications throughout the Canadian market on a time-limited basis.
Our law office is working with Fintech and Blockchain startup, in a way to file and set rules, to obtain licence and/or exemptive reliefs from the Regulators. By launching a perfectly legal ICO, chances are consumers will feel safer, get onboard and buy a piece of it.
Louis Sirois, LL.B. attorney