Canadian Securities Administrators warns crypto-backed lending platforms may face registration and prospectus requirements and urges investors to check regulatory status

The Canadian Securities Administrators (CSA) issued a reminder to crypto-backed lending platforms that securities laws may apply to their activities and encouraged firms to ensure they meet any applicable regulatory requirements. The CSA also cautioned investors to confirm the regulatory status of any platform before using crypto-backed lending services. Crypto-backed loans typically involve a borrower transferring crypto assets to a platform as collateral in an amount exceeding the loan value. Depending on the circumstances, a platform’s activities may constitute securities trading and distribution, which could require registration and the filing of a prospectus. The CSA noted it has engaged with platforms and granted business model-specific exemptive relief with conditions aimed at investor protection, and warned that platforms operating without registration or exemptive relief may expose investors to risks including weak controls for safeguarding collateral and inadequate disclosure of loan terms. The CSA encouraged platforms currently offering, or planning to offer, loans collateralized by crypto assets to contact their securities regulator to clarify applicable requirements and whether exemptive relief may be appropriate, including through the CSA Financial Innovation Hub and jurisdictional innovation hubs. Platforms that do not engage with regulators risk contravening securities laws and may face regulatory action.