Poloniex is the first crypto exchange to face the Ontario Securities Commission (OSC) since the watchdog warned that failure to register would bring stiff regulatory measures.
Under Ontario securities law, crypto exchanges supporting derivatives and securities in the region are required to “register with [OSC] to engage in the business of trading or obtain an exemption from the registration requirement.”
In a March press release, the OSC reiterated these requirements and gave platforms two choices: make contact to start the compliance process by April 19 or face the consequences.
As a result, the OSC deemed the company to be in breach of securities law.
According to a statement of allegations released Tuesday, the Seychelles-based exchange “exposed Ontario investors to unacceptable risks and created an uneven playing field within the crypto asset trading platform sector.”
By way of punishment, regulators demanded Poloniex calls time on supporting trade for crypto securities and derivatives in Ontario. The OSC also wants the exchange to:
- Pay a fine of up to CAD$1 million ($828,000) for every infraction.
- Hand over any funds obtained as a result of its noncompliance.
- Cover the cost of the OSC’s investigation.
An official hearing will take place on June 18.
As the Globe and Mail pointed out, the move is part of an ongoing effort by Canadian authorities to get a handle on crypto in the face of its booming presence.
However, Canada has no overarching regulatory body like the SEC. Instead, it leaves individual provinces and territories to oversee and implement their own securities legislation.
In March 2019, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) attempted some direction, and published a proposal of a regulatory framework for crypto trading in the country.
Poloniex isn’t the only one
As Poloniex — which has been around since 2014 — offers services to Canadian residents, the exchange must abide by Ontarian securities laws. This is despite its parent company hailing from the Seychelles, a tax haven.
Indeed, the Globe and Mail also reports more than a quarter of the exchanges to initiate compliance proceedings with the OSC are based outside Canada.
These include Cayman Islands-based Binance and Delaware-headquartered Coinbase. Incidentally, neither of these top crypto exchanges have registered with the OSC as yet.
In fact, the only crypto trading platform to successfully register belongs to millennial bank Wealthsimple.
Meanwhile, in Austria…
Canada isn’t the only country keeping a close eye on out-of-town exchanges.
Austria’s Financial Market Authority (FMA) has urged traders away from a platform called Elcurrency, which it says operates without a license and thus in breach of anti-money laundering (AML) laws, according to Finance Magnates.
The AML laws were brought into play in January 2020 and require crypto firms operating in Austria to register with the FMA or face a €200,000 fine ($243,000).
Austria’s securities watchdog has been busy since the new measures were rolled out. FMA regularly publishes investor warnings and the names and addresses of platforms it blacklists on its website.