A B.C. Securities Commission hearing panel has issued a $500,000 fine against a banned, unregistered and unauthorized crypto trading platform based in the Cayman Islands while also barring it from promotional activities in B.C.
The Sept. 17 sanctions decision provides another example of how provincial commissions are attempting to regulate crypto exchanges.
LiquiTrade Ltd. had been operating a trading platform named Latoken, which the commission’s executive director claimed was marketed to B.C. residents.
Many foreign cryptocurrency exchanges — as in the case of LiquiTrade — do not sell cryptocurrency assets, but instead offer contractual rights to those assets, thus making them derivatives and subject to securities rules.
As such, cryptocurrency exchanges are required to register with a provincial securities regulator in Canada and follow certain guidelines.
In July, a hearing panel ruled LiquiTrade was operating in B.C. without authorization. At the time, commission investigators claimed they were able to register on the platform from their computers using a B.C. Internet protocol (IP) address.
The sanctions decision revealed the platform has since barred accounts that use B.C.-based telephone numbers and IP addresses from registering, although investigators told the panel they could still start an account using virtual private network (VPN) software.
The panel reserved judgment on the VPN issue, stating: “We agree that the mitigating factor or LiquiTrade’s subsequent change of behaviour is a moderate mitigating factor. However, we emphasize that we are not expressing a conclusion about whether a failure by LiquiTrade to preclude British Columbia residents from accessing its exchange using a masked IP address is a breach of the Act.”
The panel also noted, “there is no evidence that any individual investor lost funds as a result of LiquiTrade’s conduct” and that “the executive director concedes that it appears likely the number of British Columbia users of LiquiTrade was relatively small.”
'High degree of risk'
A report from Inca Digital, Inc., commissioned by the Ontario Securities Commission on April 26, 2022, found that 0.79 per cent of all visits to the LiquiTrade website from web traffic information and social media sites were from Canadians, the panel noted in its decision.
The panel’s written decision outlined why regulators are tackling crypto exchanges, especially unregistered foreign ones.
“The prices of many crypto assets are highly volatile and investments in such assets carry a high degree of risk. In addition, some markets and platforms for trading in crypto assets have fewer controls than others.
“The Commission, in coordination with other securities regulators in Canada, has sought to mitigate many of those risks by imposing various requirements of entities which, among other things, facilitate trades in crypto assets for local residents. Those requirements and risk mitigation measures are of no value if they are ignored.”
Something not mentioned by the panel is the use of trading platforms by fraudsters.
The commission, to date, has found many companies have not responded to hearing notices and those that have been banned in Canada may still offer accounts to British Columbians.
LiquiTrade never responded to the commission’s notice, nor did it make submissions on sanctions or otherwise participate in the sanctions hearing.
