The Canadian Securities Administrators has become the latest regulator to clarify how cryptocurrency investment products are regulated.
A cryptocurrency fund may be considered a security under Canadian law if it satisfies the four-limbed “investment contract test,” according to the latest notice by the umbrella organization that oversees the country’s regional securities watchdogs.
Applying the test, any coin or token offering which “involves an investment of money in a common enterprise, with the expectation of profit to come significantly from the efforts of others,” is considered a security, the notice stated.
Any investment manager offering cryptocurrency investment products in line with the test would be required to produce a prospectus, unless a relevant exemption applies, and file the offering with the relevant securities commissions in Canada.
The notice included a list of considerations for fund managers thinking of raising or including cryptocurrency funds in a portfolio. These included requiring managers to know how they will value a cryptocurrency, how to handle custody of the assets and to register the investment fund appropriately.
It follows a similar move by the Ontario Securities Commission in March on the application of Ontario law to distributed ledger technology such as blockchain.