Guidance issued to crypto-trading platforms on advertising, marketing and social media usage requirements – Technology

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Canada: Guidance issued to crypto-trading platforms on advertising, marketing and social media usage requirements

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On September 23, 2021, the Canadian Securities Administrators (“ASC“) and the Investment Industry Regulatory Organization of Canada (“IIROC“) jointly published Staff Notice 21-330 Tips for Crypto Trading Platforms: Advertising, Marketing and Social Media Usage Requirements(“Opinion“). Crypto-trading platforms (“CTP“) with clients residing in Canada are considered by Canadian securities regulators to be subject to securities law if, for example, crypto assets are not immediately delivered to clients. Foreigners with clients in Canada are also considered securities laws.

The Notice addresses a number of CTP considerations:

1. False or misleading advertising

These guidelines will be relevant for the few platforms that are currently officially regulated and for many registrants and potential CTP markets. The CSA may assess a CTP’s advertising and marketing practices as part of a CTP registration application or post-registration compliance review.

Securities laws and IIROC rules prohibit false or misleading statements in advertising or marketing materials, including misleading statements about the regulatory status of the CTP.

The Notice provides in Appendix A various examples to illustrate potentially false or misleading statements, such as:

  • “Your crypto assets are safe with us because we meet all regulatory requirements as a fully licensed money services business under Canadian law.” The Notice considers misleading the statement that registration as a money services business sufficiently protects the interests of clients or that it provides regulation comparable to securities regulatory requirements.
  • “Our Crypto Exchange is the world’s leading exchange for trading 16 of the most commonly traded crypto assets.” The terms “exchange” and “market” refer to a particular type of regulated entity under Canadian securities law, and a CTP that facilitates transactions in securities or derivatives should not refer to it. even or present itself to investors as a stock exchange or as authorized to operate as a market under securities legislation. In addition, this statement and others, such as “Our platform is still considered the safest and most trusted platform by major rating agencies, including Digital Bitcoin Rating Service and Triple A Crypto All Stars “and” We are your cheapest and best source for Bitcoin “, would require sufficient evidence to substantiate the claims.
  • “On our platform, you keep more of your money because we never charge commissions!” If the platform instead charges a markup on the best price it gets and keeps the difference on trades where it acts as a market maker, or if the CTP monetizes client order flow and does not deliver of reasonable disclosure explaining the basis of these alternative forms of compensation, then this statement could be false or misleading. If only certain products were offered without a commission, it could also mislead investors.
  • “We don’t have any suitability obligations. We make it clear to investors that crypto trading is risky, but we are under no obligation to tell clients whether or not crypto trading is right for them.” This could potentially mislead investors as CTPs, even those exempt from the requirement to determine transaction-to-transaction adequacy, are required to consider a client’s financial assets and income, their tolerance for risk, their experience in investing in crypto assets, and experience in using order execution only with online brokers.

2. Promotions and “style of play” programs

The Notice states that the duty to treat customers fairly, honestly and in good faith may be violated by encouraging excessively risky transactions through contests, promotions, bonuses and limited offers or rewards in the time (for example, offering a financial reward or bonus interest in a particular type of crypto asset to the first 500 investors who act in the next 24 hours).

CTPs that rely on exemptions from the suitability requirements should ensure that their advertising and marketing practices do not constitute an active solicitation of negotiation in a manner that would be inconsistent with its exemption.

3. Use of social media

CTPs are required to keep records of business, financial affairs and customer transactions. The use of social media to communicate with customers and the general public for business purposes increases the risk that these records will not be properly maintained. Registered CTPs therefore need to design systems that facilitate the retention of records and are able to retrieve those recordings.

4. General compliance with securities legislation

In addition to examples of potential false or misleading advertising, the Notice provides in Appendix A examples of other statements that could be problematic:

  • “When I want to buy Bitcoin, I always use the BuyEasy crypto platform – it’s so easy to buy! If made by a promoter, this statement could be considered a form of recommendation or and could trigger obligations under securities law for the CTP and potentially the individual promoter. The exemption from “general advice” may not apply to such activities if the advice is tailored to the needs of the person receiving it and the person providing the advice does not disclose any financial or other interest that the endorser has. in the transmitter.
  • “Important update! BTC is skyrocketing! Don’t get left behind!” This statement can be considered a form of recommendation or advice, especially when included in a personalized communication such as an email sent to investors. For a more in-depth discussion of what activities might be considered a form of recommendation or advice, please refer to IIROC Directives on order execution services and activities only.

The requirement of a CTP to adopt policies and procedures for the review, supervision, retention and retrieval of advertising and marketing material extends to such material on social media. These policies and procedures should also designate a person responsible for overseeing or approving marketing communications, and they should provide a system to monitor compliance with these policies and procedures.

This latter notice should be considered in conjunction with the CSA-IIROC Joint Notice. Staff Notice 21-329 Tips for crypto asset trading platforms: Compliance with regulatory requirements(see our information on Staff Notice 21-329 here).

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The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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