In August 2017, the Canadian Securities Administration (CSA) published Notice 46-307, which is worth reading in full. It stated that coins/tokens from an ICO bay be considered a security if four conditions are satisfied: that the token involves (i) an investment of money (ii) in a common enterprise (iii) with the expectation of profit (iv) to come significantly from the efforts of others.” (Source)

If a token is considered a ‘security’, securities law in Canada applies to the token. See the section ‘securities law requirements that apply on the Notice 46-307 page’ for a list of details. Generally, ‘securities’ offered to the public in Canada have to be offered with a prospectus, which details the business being invested in, and information about securities commissions. No business has yet used a prospectus to complete an ICO/ITO in Canada; the Canadian Securities Regulator expects coins/tokens to be distributed in Canada on a prospectus exempt basis. Requirements for prospectus exemptions are on the Notice 46-307 page.

Firms doing ICOs may also be considered trading in securities for a business purpose, and thus require dealer registration or application for exemption from dealer registration. The Canadian Securities Administration has identified these four factors, amongst others, as helping them to decide whether a firm was trading in securities for a business purpose.

• Soliciting a broad base of investors, including retail investors;
• Using the internet, including public websites and discussion boards, to reach a large number of potential investors;
• Attending public events, including conferences and meetups, to actively advertise the sale of the coins/tokens; and
• Raising a significant amount of capital from a large number of investors. Notice 46-307 also had comments on regulation on cryptocurrency investment funds, which is worth reading if your firm is trying to set up such a fund.

No crypto exchanges have registered with securities regulators in Canada so far, but the Canadian Securities Administration is pushing for them to do so.

Sources:

• Canada Securities Administration Notice 46-307 Worth Reading in Full
• Article about the Application of Securities Law to Cryptocurrency in Canada
• Legal Status of cyptocurrency in Canada