Regulations for Cryptocurrency in Canada

Is Cryptocurrency Legal in Canada?

• Cryptocurrencies: Not legal tender
• Cryptocurrency exchanges: Legal, required to register with FinTRAC after June 1, 2020

In Canada cryptocurrency is not legal tender but can be used to buy goods and services online or in stores that accept them. Canada has been fairly proactive in its treatment of digital, virtual, and cryptocurrencies: it was the first country to approve AML-related regulation of cryptocurrency service providers, primarily regulating them under provincial securities laws as money service businesses (MSBs) in order to protect the public. Canada brought entities dealing in virtual currencies under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) as early as 2014, while in 2017, the British Columbia Securities Commission registered the first cryptocurrency-only investment fund. In August 2017, the Canadian Securities Administrators (CSA) issued a notice on the applicability of existing securities laws to cryptocurrencies and, in January 2018, the head of Canada’s Central Bank characterized them “technically” as securities. The Canada Revenue Agency has taxed cryptocurrencies since 2013 and Canadian tax laws apply to cryptocurrency transactions.

Cryptocurrency Canada – Exchange Regulations

Exchanges of cryptocurrency in Canada are essentially regulated in the same way as money services businesses and are subject to the same due diligence, record keeping, verification, and reporting obligations as MSB’s dealing with fiat currencies. After amendments to the PCMLTFA (approved in July 2019), from June 2020 all cryptocurrency exchanges need to register with the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) and, where applicable, comply with margin and market valuation requirements.

In February 2020, the Virtual Currency Travel Rule came into effect in Canada, requiring all financial institutions and money services businesses (MSB) to keep a record of all cross-border cryptocurrency transactions (along with all electronic fund transfers). This change also effectively means that crypto asset deals, and persons that undertake cross-border transactions, are subject to the enhanced due diligence requirements set out in PCMLTFA.

Future Canadian Cryptocurrency Regulations

While Canadian cryptocurrency regulations are constantly evolving, there are no signs of significant additional legislation on the horizon. Recent updates to the PCMLTFA have yet to fully take effect and the requirement that MSBs register with FinTRAC will not come into effect until June 2021. It is likely that both the Canadian government and crypto exchanges will need time to evaluate how these legislative changes have affected the cryptocurrency landscape in Canada before considering additional legislation.