In an effort to more “quickly respond to cryptocurrency failures” such as the collapse of QuadrigCX, Canada’s top investment industry regulator has introduced a new digital asset custody rule that tightens standards for digital asset custody.
Industry-led Canadian Investment Regulatory Organization (CIRO) said its new digital asset custody framework is designed to enable it to respond more quickly to risks, including hacks, fraud, weak governance and insolvency, that have put investors at risk during past events.
“Many of the expectations in the framework have been developed in close consultation with all parties [crypto-asset trading platforms] A CIRO spokesperson told CoinDesk, adding that transition considerations would be made on a case-by-case basis.
“The new framework also provides a balance between flexibility and risk management, supporting innovation while ensuring strong investor protection,” the spokesperson added.
deep in collapse
The collapse of QuadrigaCX in 2019 remains one of the most notorious failures in Canadian cryptocurrency history, with $123 million still unaccounted for. Its CEO Gerald Cotton died and client funds were discovered missing. An investigation later revealed that co-founder Michael Patryn was allegedly deeply involved in the exchange’s operations during the period when the misappropriation of funds occurred.
“Custody is one of the most critical risk points in the cryptocurrency ecosystem,” said Alexandra Williams, senior vice president of strategy, innovation and stakeholder protection at CIRO.
A core feature of the guidance is a risk-based tiered structure that allows companies to diversify and strengthen custody arrangements while maintaining strong investor protection.
Early signs suggest expectations must be updated
CIRO said it would consider emerging custody and cyber risks, recurring regulatory issues across companies or changes in market practices as early warning signs that may require updated expectations.
“If we discover that expectations and managed risks are no longer performing in practice, CIRO will proactively update the framework rather than wait for failures to occur,” the regulator said.
Canada has taken a cautious approach to cryptocurrency regulation, bringing trading platforms under existing securities rules and emphasizing investor protection through registration, custody and disclosure requirements. Recent federal government initiatives on stablecoins and the Bank of Canada’s expanded supervisory role indicate that the national framework for digital assets is slowly shifting.
CIRO is a self-regulatory body that sets standards for investment dealers, mutual fund dealers and trading activities in Canada, with quasi-judicial powers to investigate misconduct and impose disciplinary actions, including fines, suspensions and permanent bans.
