Canadian Securities Administrators Announces New Crypto Asset Regulations
On April 17, 2025, the Canadian Securities Administrators (“CSA”) announced amendments to National Instrument 81-102 – Investment Funds (“NI 81-102”) and its companion policy regarding investments in crypto assets by reporting issuer investment funds (“Public Crypto Asset Funds”). These changes aim to clarify regulatory standards for Public Crypto Asset Funds by codifying practices developed through the prospectus review process and previous exemptive relief decisions. The amendments are set to come into force on July 16, 2025, pending necessary ministerial approvals.
Background and Regulatory Framework
The amendments are part of the second phase of a three-phase project by the CSA to implement a regulatory framework for Public Crypto Asset Funds. This framework aims to ensure adequate investor protection, mitigate potential risks, and provide greater regulatory clarity for product development and management.
Key Changes to NI 81-102
The amendments introduce several key changes to NI 81-102 and its companion policy:
- Types of Funds that Can Invest in Crypto Assets: Only alternative mutual funds and non-redeemable investment funds will be able to directly invest in crypto assets. Other mutual funds can invest indirectly through alternative mutual funds or specified derivatives.
- Definition of Crypto Asset: Guidance clarifies that a “crypto asset” generally includes digital representations of value using cryptography and distributed ledger technology.
- Investment Restrictions: Alternative mutual funds and non-redeemable investment funds can only invest in fungible crypto assets listed on recognized exchanges or underlying specified derivatives traded on such exchanges.
- Custody Requirements: Custodians must hold crypto assets in offline private cryptographic keys (“cold wallets”) except when required for transactions. They must obtain and deliver a public accountant’s report (such as a SOC-2 Type II report) annually.
- In-Kind Subscription Proceeds: Mutual funds holding crypto assets can accept them as subscription proceeds if permitted to purchase them, consistent with their investment objectives, and valued at least equal to the issue price of the fund’s securities.
These amendments aim to provide clearer regulatory guidelines for Public Crypto Asset Funds while maintaining investor protection. The CSA’s regulatory framework development is an ongoing process, with these changes representing a significant step in adapting to the evolving crypto asset landscape.
Readers are cautioned that this overview does not constitute legal advice. Specific legal counsel should be obtained before making decisions based on this information.
