The Canadian Investment Regulatory Organization (CIRO) has announced that Canada has introduced new crypto custody rules for the exchanges to reduce the risk of investor losses and prevent failures, as the QuadrigaCX collapse happened in 2019.
This move immediately takes effect after the direct response to the past crypto failure, like the QuadrigaCX collapse. QuadrigaCX was one of the canada’s largest crypto exchanges. After its CEO died, it has missed about $123 million of customer funds. Investigations later found that this was caused by its poor controls, weak governance, and serious custody failures.
What CIRO’S new crypto rules do
CIRO’S Digital Asset Custody Framework used a risk-based approach, which sets clear standards for protecting investors from hacking, fraud, weak controls, and poor governance. The firms which higher risk activities should meet the stronger custody standards, and the lower-risk firms get more flexibility but still need the protections.
After the new rules, crypto platforms in Canada should use stronger custody arrangements and improve the internal controls and oversight with clear separation of customer assets from the company funds. CIRO says many platforms are already following a similar structure, and any transitions to the new rules will be handled case by case without disrupting the firms suddenly.
Canada’s approach towards crypto custody
CIRO says that it will actively monitor the new risk, and the regulators will update the new rules if they seem to have any new custody threats and repeated problems across the firms. This shows that the framework still needs to be fixed and will evolve as per the crypto market changes.
Canada has taken a protective approach towards crypto regulations and is bringing crypto custody platforms under the existing securities laws. CIRO has the authority to investigate the misconduct, impose fines, and suspend the firms, which shows a strong focus on the custody and increased attention on stablecoins.
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