Canada’s top authority overseeing the investment industry has introduced new custody rules to increase the security of cryptocurrencies. The regulation published on Tuesday aims to prevent investors from repeating their losses due to hacking, fraud and management weaknesses in the past. The framework prepared by the Canadian Investment Regulatory Organization (CIRO) imposes clear obligations on crypto trading platforms operating in the country. The regulation will be implemented through temporary membership conditions until permanent legislation is created.
Key Elements of the New Storage Framework
The Digital Asset Custody Framework published by CIRO offers a comprehensive audit model for the protection of cryptocurrencies. The regulation sets detailed standards on how member institutions operating on crypto trading platforms must store customer assets. These standards cover a wide range of areas, from technological infrastructure to legal responsibilities.
At the heart of the framework is a four-stage risk-based structure. Organizations that provide custody services; They are classified according to criteria such as capital adequacy, insurance coverage, regulatory control level and operational durability. Custodians in the top tier can hold up to 100 percent of client assets, while the cap for entities in the bottom category is capped at 40 percent.
The cryptocurrencies held by the platforms are limited to a maximum of 20 percent of the total customer assets. In addition, comprehensive management policies for key management, cyber security, incident response plans and third-party risks are made mandatory. Insurance enforcement, independent audit reports, security compliance documents and regular penetration tests are also among the key elements of the framework.
Past Crises and Regulatory Pressure
It seems that the heavy losses Canada suffered in the past played a decisive role in the preparation of the new rules. In particular, the collapse of the QuadrigaCX crypto exchange in 2019 caused thousands of investors to lose their savings. CIRO emphasizes that the lessons learned from the case form the basis of the regulation.
The organization also requires that liability for damages arising from negligence or preventable errors be clearly defined in storage agreements. Thus, it is aimed to strengthen the legal rights of investors. Authorities state that the developed system offers a balanced structure between investor security and market competition.
Regulatory pressure on the crypto sector in Canada has increased significantly recently. Last October, FINTRAC fined Cryptomus approximately $126 million for reporting deficiencies regarding dirty money and illegal transactions. In the same year, international platforms such as KuCoin and Binance also faced similar sanctions. CIRO has the authority to conduct investigations, impose fines and suspend activities on member companies.
