The Canadian Investment Regulatory Organization (CIRO) has introduced new regulatory frameworks for crypto assets. The framework aims to differentiate the custody of crypto assets from tokenized traditional financial instruments, reflecting their distinct legal, operational, and risk profiles.
CIRO sets custody rules for digital assets
Lessons learned from QuadrigaCX, the crypto exchange, have taught the Canadian regulators to be quicker to respond to ‘crypto failures.’ It appears they no longer want to wait for a warning siren. Canada’s top investment industry regulator, CIRO, has introduced new digital asset custody rules tightening their custody standards.
The industry-led Canadian Investment Regulatory Organization (CIRO) said that they have introduced a new rulebook for Digital Asset Custody to respond quicker to risks, including hacks, fraud, weak governance, and insolvencies, giving ample time to intervene if something goes haywire.
The existing CIRO rules focus on the custody and segregation of client assets from company funds and the capital requirements for stocks and derivatives. What they don’t address are the technological, operational, and legal risks of digital assets.
“Approval of a digital asset custodian by CIRO is a separate and distinct determination from the recognition of an Acceptable Securities Location (ASL) under the CIRO Rules,” the official statement said.
CIRO’s statement also stated the absence of formal rules led to investor vulnerability due to inadequate governance. This led to losses through hacking, fraud, and insolvency, with QuadrigaCX being one of the most infamous cases.
The downfall of QuadrigaCX
Crypto fraudulent activities have left investors with their assets exposed to danger in past incidents. QuadrigaCX, Canada’s largest cryptocurrency exchange by trading volume, suddenly collapsed in 2019, with $123 million still unaccounted for.
With the unexpected death of company CEO Gerald Cotten, customers could not access their funds, as the claims suggested that Cotten was the only one who had access to passwords for the exchange’s crypto wallets, with about $123 million worth of crypto and cash never recovered.
However, investigations proved that large amounts of funds were missing and misused long before Cotten’s death, with co-founder Michael Patryn allegedly being deeply involved during the same period.
The case was a clear example of poor safety mechanisms, lack of oversight, and possible fraud, where investors lost funds due to poor governance of crypto firms.
