Canada’s largest markets watchdog banned Tether — is USDT a security?

Maverick stablecoin Tether is now the only crypto asset outright banned by the Ontario Securities Commission. Here's what that could mean.

Ontario’s securities watchdog has banned crypto platforms operating in the region from touching Tether (USDT) — reversing what should be a home court advantage for the maverick stablecoin.

The Ontario Securities Commission (OSC), which regulates investments across Canada’s largest jurisdiction, issued a list of prohibited crypto assets late last month.

That list (filed under Appendix C in a favorable ruling for local exchange Coinberry) is incredibly short. In fact, it wasn’t really a list at all — there was just one banned cryptocurrency: USDT.

Appendix B named four assets that the OSC allows to trade freely in Ontario: Bitcoin, Bitcoin Cash, Ether, and Litecoin.

While Tether’s ousting might seem insignificant, the largest and most liquid stablecoin is linked to Ontario in a number of curious ways. 

When combined, the OSC’s decision is far more noteworthy.

Tether’s ties to Canada

Sister companies Bitfinex and Tether maintain compliance teams almost exclusively run by Ontario-based lawyers and former regulators.

To start, their general counsel Stuart Hoegner has been practicing out of Ontario for over a decade — originally working as director of compliance for Excapsa Software, a company that sowed pain across the online poker world years ago.

Bitfinex chief compliance officer Peter Warrack boasts a long employment history at Canada’s largest bank (and the country’s third largest company), the Royal Bank of Canada (RBC).

Peter Warrack labelled ICOs “a fraudster’s dream… a pyramid of tears waiting to fall” in December 2017.

Warrack still serves as a senior manager of intelligence at RBC today. 

He also works as a compliance officer and director of anti-money laundering advisory at the Bank of Montreal, another bank headquartered in Ontario.

But the associations don’t end there: Tether’s chief compliance officer Leonardo Real also called the Bank of Montreal home before he moved into the cryptocurrency ecosystem.

Ignore the boot, focus on the journalists

A number of factors likely led the OSC to ban Tether trade across Ontario.

First, it could be that regulators finally came to terms with Tether once using the Bank of Montreal as a reserve for its controversial asset portfolio — without anyone aware of it (as disclosed by the New York Attorney General earlier this year).

Second, the OSC might perceive Tether as an unregistered security and wants to hinder USDT trade until proper precautions are in place.

It’s important to note that as far as anyone is aware, the OSC has not pushed for any further punishment of Tether. 

Tether previously leveraged Canadian connections to keep itself afloat.

Read more: [Tether’s latest disclosure wasn’t pie charts — so we made our own]

The OSC’s powers include enforcement actions and fines, as well as the sway to recommend crypto assets like Tether be reviewed by the region’s finance minister Peter Bethlenfalvy.

Meanwhile, the usually boisterous and defensive Tether has opted to keep mum on its run-in with the OSC.

The Hong Kong-headquartered firm instead worked to deny reporters the right to learn what composes Tether’s now-$67 billion reserves.

Tether lawyers cited risk of revealing “proprietary information” and buckling to “wild speculation by online trolls.”

Is Tether a security?

Protos reached out to the OSC to learn more about the exact circumstances of its Tether ban. A spokesperson directed us to two communications from March. 

One was the Canadian Securities Administrators’ Guidance for Crypto-Asset Trading Platforms: Compliance with Regulatory Requirements. It details standards local crypto platforms must adhere to regarding security tokens and crypto derivatives.

The other was an OSC press release titled: OSC working to ensure crypto asset trading platforms comply with securities law, which quotes OSC chief Grant Vingoe stating:

“Unregistered crypto asset trading platforms expose Ontario investors to significant risks, including potential loss, theft and misuse of their assets. The recent explosion of unregistered platforms has magnified these risks.”

“Regulatory oversight serves a critical role in investor protection, and we expect platforms to act swiftly to bring themselves into compliance with Ontario securities law.”

Tether is the only crypto asset overtly prohibited by the OSC.

Read more: [Ontario SEC wants to kick crypto ass and take names — KuCoin is next]

Both documents suggest the OSC could indeed view USDT as a security. However, the spokesperson stopped short of confirming if that were the case.

Over in the US, Securities and Exchange Commission (SEC) chair Gary Gensler hinted in July that stablecoins backed by securities (which describes USDT) could fall under the SEC’s jurisdiction.

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