Monday Market Minute | Nov 21, 2022

Post-FTX regulatory reckoning — CSA and OSC accelerate crypto platform oversight as BlockFi files bankruptcy

What Moved

The FTX fallout continued with BlockFi filing for Chapter 11 bankruptcy, citing significant exposure to FTX and Alameda Research. Canadian regulators moved swiftly: the CSA issued guidance reinforcing that crypto trading platforms operating in Canada must register and comply with securities regulations, and the OSC publicly confirmed it was reviewing the implications of FTX's collapse for Canadian investors who had used the platform. OTPP acknowledged its $95 million FTX investment, writing the position to zero — a rare and public loss for one of Canada's most respected institutional investors.

Why It Matters

The OTPP write-down carried outsized significance: if Canada's largest and most sophisticated pension fund could lose money on a crypto investment that turned out to be fraud, what chance did individual exempt-market investors have? The answer pointed squarely to the need for rigorous regulatory frameworks, independent custodianship, and proof-of-reserves requirements. For the Canadian alternative investment industry, the crypto disasters of 2022 reinforced the value of regulated, traditional private market structures where investor protections were established.

Signal to Watch

CSA rulemaking on crypto custody and proof-of-reserves requirements — meaningful new regulations would signal that Canada was moving from reactive enforcement to proactive investor protection.

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