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OSC head promises 'most serious consequences' for crypto companies encouraging VPN use to avoid rule


Unregulated global crypto companies may be enticing Ontario investors to avert rules by masking their location

The head of the Ontario Securities Commission says domestic cryptocurrency regulations are necessary to protect investors here, even amid suggestions that unregulated global crypto companies may be enticing Ontario investors to avert the rules by using VPN technology to disguise their location.


Grant Vingoe, chief executive of Canada’s largest capital markets watchdog, said the growth of international platforms for buying and trading crypto that operate in “regulatory ambiguity” — without permission from either their home countries or the jurisdictions where targeted investors live — created a “compelling” case for regulation in Canada.


Global crypto platforms, too, must now register with the Ontario market regulator or face bans or other sanctions.


They “have to decide whether accessing Canadian investors in accordance with Canadian law is worth the compliance effort,” Vingoe, who spoke about the OSC’s views on crypto regulation at a lunchtime event in Toronto on Thursday, wrote in a post on LinkedIn.


“This has been effective because many international platforms don’t want the stigma of being censured in Canada, which could hinder their credibility and global ambitions.”


Vingoe said he does not view the policies as the regulator picking “winners and losers” because the OSC takes a technology-neutral approach in its assessment of new platforms and products.


“The fundamentals of regulation are equally applicable to stocks, bonds and crypto contracts,” he said.


In June, the OSC logged two successful enforcement cases in a crackdown on “non-complaint” crypto asset trading platforms: a settlement with Bybit Fintech Ltd., and a Capital Markets Tribunal ruling against KuCoin that imposed a permanent market ban and “substantial” monetary sanctions.


Vingoe said the OSC would seek “the most serious consequences” for any platforms found to be encouraging investors to use virtual private networks, or VPNs, to disguise their online identities and location in order to invest in crypto. The technology has been used for years as a method to stream TV shows and movies in countries where they are not available, and crackdowns are rare.


“Compliance systems are improving rapidly, and we will demand vigilance,” Vingoe wrote. “The solution for the residual risk will ultimately lie in increased international regulatory co-operation.”


The OSC has faced criticism from some proponents who say early regulation thwarted Canada’s ability to develop crypto giants. Meanwhile, a recent op-ed penned by two officials from the Consumer Choice Center — which Vingoe was responding to in his LinkedIn post — said Canada’s regulatory system, and “outlier” Ontario in particular, was broken and full of risk.


“Unfortunately, the debate about appropriate regulation of the crypto industry is rife with misinformation, both intentional and unintentional,” Vingoe said in his address at the Economic Club of Canada on Thursday.


“Much of it is put forward by those self-interested players who benefit from the absence of regulation and the confusion that results.”


The OSC has taken a number of regulatory actions in the crypto sector in recent months. However, Vingoe said the Ontario watchdog’s “direct” regulation is expected to be temporary for many crypto firms that deal with retail investors. Those will ultimately require membership with The Investment Industry Regulatory Organization of Canada (IIROC), the national investment dealer self-regulatory organization that governs conduct, prudential regulation and market surveillance.


IIROC “is the right destination” for most of these firms because they deal with retail investors, Vingoe said, adding that he considers the view that crypto should receive different regulatory treatment from others offering similar services in the financial industry to be a “completely misguided” approach.


“It is not sound public policy to exclude platforms that deal in the most speculative assets from IIROC oversight, yet require it for dealers that are involved in capital formation for businesses that develop our economy and can support stable retirement savings,” he said. “That is the very definition of an uneven playing field.”


In the meantime, the OSC is not sitting by.


On Friday, the regulator alleged that an Ontario man committed securities fraud in a $51-million cryptocurrency token offering, accusing Troy Richard James Hogg of “depleting a significant amount of invested funds” for purposes unrelated to crypto, such as buying real estate. The OSC laid out its case against Hogg and affiliated companies at the same time the U.S. Securities and Exchange Commission announced it had filed charges against Hogg and several U.S. residents in the U.S. District Court for the Southern District of Florida.


None of the allegations have been proven.


Vingoe acknowledged various use cases and the appeal of crypto as an investment in his speech on Thursday, noting that the global market capitalization for crypto assets remains close to a trillion dollars despite a collapse of nearly 70 per cent in the last several months. The regulator’s own research indicates that more than 30 per cent of Canadians plan to buy crypto assets in the next year.


“There is clearly great potential in blockchain technology on which crypto assets are based. It has broad applications for businesses, institutions and governments that would benefit from transaction records that cannot be altered,” he said.


However, he added, the crypto market as a whole “is extremely volatile” and most investments remain largely speculative, making the case for regulation over a free-market, hands-off approach.


“The prominent losses, platform failures and instances of fraud we’ve all heard about have a devastating cost to people’s financial lives,” Vingoe said, citing the 76,000 mostly Canadian investors who were wiped out in the collapse of QuadrigaCX, with losses totalling more than $100 million.


“The freedom for bad actors to rip off their fellow citizens is not the kind of freedom that benefits any market.”



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