Poloniex the Latest Target as Canadian Regulators Clamp Down on Service Providers


Canadian regulators are cracking down on cryptocurrency services providers like Poloniex, GDAX, Cryptopia, and ShapeShift. They’re essentially asking for a list of all their customers, and a passport scan of each customer’s ID, to make sure each person is over 18 years old. That’s a lot of information to collect, and these sites have to secure the information while also protecting the privacy of their users.

The recent news that the Canadian Securities Administrators (CSA), a self-regulatory body, has announced a new round of regulatory actions against crypto-asset service providers has resulted in a number of companies, including Poloniex, halting trading services.

Poloniex is one of the most important cryptocurrency exchanges in the world because of its large trading volume and because it is not a US-based exchange. As a result, it has been the target of the US government for a long time. In January, the US authorities had two agents in New York City arrest the CEO of one of its competitors, who was also an employee of the exchange. Poloniex has always maintained its innocence in the case.

After going unnoticed for years, digital assets seem to have become the target of regulators and tax authorities around the world.  As scrutiny increases, so does scrutiny in the far north, where the Canadian Securities Administrators (CSA) and the Ontario Securities Commission (OSC) seek to hold market participants accountable for their actions.  Here are some of the ways service providers can be held accountable.

  1. Registration for study grant obligatory
  2. Enforcement actions
  3. Limit leveraged trading
  4. Mandatory reporting of large value transactions

Mandatory registration

In early 2021, the OSC announced that it would set a deadline for exchanges serving provincial residents to register with the regulator if access is provided to securities or derivatives. This measure, which provides for regulatory action in the event of non-compliance, was taken to protect investors.  Grant Wingow, CEO of OSC, said: Unregistered crypto asset trading platforms expose investors in Ontario to significant risks, including potential loss, theft and misuse of their assets. The recent explosion of unregistered platforms has increased these risks….. Regulatory oversight plays an important role in protecting investors, and we expect platforms to act quickly to comply with Ontario’s securities laws. The deadline is the 19th. April’s already over.  Apparently the CSO has now changed tack and will be taking action against those who have not registered.  This became clear when Poloniex became the first prominent target of persecution.

Disclosure procedures against Poloniex

As noted above, Poloniex is the first exchange to be considered by the OSC after the registration deadline.  In a recent indictment, the OSC charges the following violations.

  • Poloniex has engaged, or intended to engage, in the trading of securities without the required registration or applicable exemption from registration, in violation of subsection 25(1) of the Ontario Securities Act, R.S.O. 1990, c. S.5, as amended (Act);
  • Poloniex traded securities representing distributions without meeting the prospectus requirements and without the applicable prospectus exemption, in violation of section 53 of the Act; and
  • Poloniex is guilty of activities that are contrary to the public interest.

As a result, the OSC is asking Poloniex not only to cease trading these assets, but also to be reprimanded for its past actions.  In addition, the OSC intends to indefinitely prohibit the Exchange from registering as a fund manager. If convicted of these charges, Poloniex could face fines of up to $1 million for each violation of the securities laws, as well as legal fees associated with the lawsuit and various other penalties. Needless to say, any stock exchange doing business in Canada will be watching the situation closely.

Leverage transactions

Since day one, cryptocurrencies have been synonymous with volatility.  Some investors see this as an opportunity, others as an obstacle on the road to mainstream acceptance.  While this debate continues, the true cause of volatility has yet to be determined.  That could change, however, as many business leaders now believe they know the reason: leveraged trading. Leverage trading, where investors trade with leveraged funds, is an extremely risky practice.  When you participate in trading, the potential profits and losses increase.  In digital asset exchanges, this practice is taken to the extreme: Many of them offer leverage of up to 100:1.  This huge ratio means significant price volatility in the event of a liquidation. Speaking to CNBC, JMP analyst Devin Ryan said: Selling provokes more selling until you reach a balance of leverage in the system ….. Leverage in cryptocurrency markets – especially retail markets – is a big deal, with an emphasis on volatility. Although some exchanges restrict the ability of professional accounts to use leverage, the ability to use such ratios may soon disappear altogether as the OSC cites Poloniex in its recent complaint allowing this practice.  Users of other platforms, such as Crypto.com, have already been notified that this practice will be discontinued in their jurisdictions. Poloniex the Latest Target as Canadian Regulators Clamp Down on Service Providers

High quality reports

While Poloniex is currently in the spotlight, it may be the Toronto-based Coinsquare exchange that will be the first to face the wrath of the Canada Revenue Agency (CRA). A few months ago, in a chain of events reminiscent of Coinbase and the IRS a few years ago, Coinsquare was forced to hand over its customers’ data.  While the exchange could agree on limits on the amount of data released, this is an important development – cryptocurrencies are not anonymous, and authorities will do everything they can to prevent potential money laundering. From each of these examples, it can be concluded that the day of reckoning is coming for service providers who break the rules.  Whether warranted or not, regulators and tax authorities have taken steps to be accountable, not only through guidance, but also through broad-based enforcement actions.The latest development in the ongoing saga between the Canadian government and the cryptocurrency exchange Poloniex is that Poloniex has accepted a voluntary service to make their polo account registrations compliant with the Canada Securities Exchange (CSE) rulebook. This means that from November 18, 2017, all polo accounts registered to Poloniex will be required to comply with the CSE rulebook.. Read more about canada crypto exchange regulation and let us know what you think.

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Emilia James
By Emilia James

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