Financial Services Regulatory Authority Of Ontario Proposes Guidance For Crypto Custodians And Other Trust Corporations

Published date23 August 2023
Subject MatterFinance and Banking, Corporate/Commercial Law, Consumer Protection, Technology, Financial Services, Corporate and Company Law, Contracts and Commercial Law, Consumer Law, Fin Tech
Law FirmMcCarthy Tétrault LLP
AuthorTechLex Blog, Ana Badour, Lori Stein and Khristoff Browning

On August 10, 2023, the Financial Services Regulatory Authority of Ontario (FSRA) issued proposed guidance on Regulatory responsibilities for trust corporations, including crypto custodians, operating in Ontario (the Guidance). Comments are due October 10, 2023.

According to FSRA's news release, the Guidance is intended to, "clarif[y] when trust corporations, including crypto custodians, need to register with FRSA" and is, "designed to better protect Ontario consumers and help address 'regulatory gaps' with respect to trust corporations holding people's crypto assets".

FSRA defines a "Crypto Custodian" as a provider of services to "store the private keys that allow access to and transfers of crypto assets and provide security services and controls to prevent the loss of crypto assets, deter fraudulent activity, and protect consumers". As a result of this broad definition, the Guidance will be of interest to many types of crypto asset service providers that have customers in Ontario, including custodians, crypto asset trading platforms (CTPs) and providers of private key management software.


FSRA has observed an increase in consumer interest and investments in crypto assets in recent years, and that, "governments, banks and regulators globally are looking at how to best address potential risks associated with crypto assets". FSRA notes that, since loss of private keys is a principal risk of owning crypto assets, many rely on the services of a Crypto Custodian. The Guidance references the regulatory framework for CTPs established by the Canadian Securities Administrators (CSA), under which eleven CTPs have registered as securities dealers in Ontario and other Canadian jurisdictions since March 2021 (Dealer CTPs), and another eleven CTPs have undertaken to become registered by no later than March 2024. Dealer CTPs are subject to the securities regulatory requirement for client assets to be held with a "qualified custodian" as defined in Canadian securities law.

The definition of "qualified custodian" includes a trust company that is incorporated and licensed or registered under the laws of Canada or a jurisdiction of Canada, as well as a foreign entity that is incorporated under the laws of a country or political subdivision of a country other than Canada and regulated as a trust company by the government, or an agency of the government, of such foreign country or political subdivision. A key difference between the qualification criteria for Canadian and foreign trust companies is that the equity requirement is the equivalent of C$10 million for a Canadian custodian and C$100 million for a foreign custodian, in each case as reported on the custodian's most recent audited balance sheet.

Under the CSA's strengthened approach toward the regulation of Dealer CTPs announced in February 2023, the CSA imposed additional qualification criteria for Crypto Custodians, including: (i) a current Systems and Organization Controls (SOC) report or comparable report; (ii) audited financial statement reporting requirements, including reporting of client crypto asset liabilities and reserves on the balance sheet or in the notes); and (iii) for Foreign Crypto Custodians, CSA approval, which may be granted to a foreign custodian that does not meet the C$100 million equity requirement.

Most Canadian Dealer CTPs use the services of foreign Crypto Custodians to hold client assets since there is currently only one Crypto Custodian incorporated in Canada, specifically, Tetra Trust Company (Tetra)...

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