Thank you.
I'm Matthew Burgoyne, partner and co-chair of the digital assets and blockchain group at Osler, Hoskin & Harcourt. I'm in our Calgary office.
It's a pleasure to be here. Thank you very much, committee members, for asking me to come to be a witness today.
While blockchain has a wide application in many different industries—supply chain management, health care, oil and gas, manufacturing, real estate and other industries—cryptocurrency is also crucially important. To date, I believe that Bitcoin is the best example we have of a fully developed, decentralized and well-functioning blockchain network. Blockchain is important, but cryptocurrencies like bitcoin and ether are also important and are increasingly playing a more significant role in business transactions, investments and other digital financial transactions.
The following are some of the rationales behind why companies are testing and adopting cryptocurrencies in Canada.
First, crypto could enable access to a tech-savvy customer base that values transparency in transactions.
Payments in cross-border transactions—for example, the acquisition of goods and services, paying foreign contractors and paying foreign employees—could be made using crypto in a matter of seconds, versus waiting sometimes up to a week to settle cross-border transactions with bank wires. Crypto could enable access to new capital and liquidity pools via the tokenization of traditional investments.
Many of my clients—which include entrepreneurs, medium-sized businesses and some larger businesses—in the crypto and blockchain space face enormous challenges. These challenges include lack of access to basic banking services, lack of access to insurance products, a difficult labour market and high regulatory compliance costs, mainly in securities law compliance.
Access to banking is especially burdensome for Canadian entrepreneurs in the space. Canadian entrepreneurs who otherwise comply with regulation and raise significant investment from Canadian investors are being denied basic business banking and chequing accounts quite regularly. The reason being given by Canada's banks is that crypto is too risky and the compliance costs related to anti-money-laundering and counterterrorist financing regulations do not make it economically feasible to provide banking services to crypto companies, save only for the largest companies. This puts small business owners at a disadvantage and puts Canadian businesses in general at a disadvantage when compared to international and mainly U.S.-based crypto companies, which have easier access to banking.
Insurance is another difficult product to obtain. My clients are forced to obtain policies from offshore or foreign insurance providers, sometimes at astronomical premiums and rates. There is a perception that crypto is still high risk, when the reality is that most crypto companies in Canada are registered with multiple regulators and are arguably more regulated than businesses in other industries.
Compliance costs related to securities law, including the costs associated with complying with recent Canadian Securities Administrators staff notices, can run companies millions of dollars in legal fees per year. Also, compliance with Canadian securities legislation substantially limits the product offerings that Canadian crypto asset trading platforms can provide to Canadians, which puts the Canadian platforms at a competitive disadvantage when compared to foreign-based crypto asset trading platforms.
The Canadian Securities Administrators and IIROC have tried their best to protect the public, and they are operating under trying circumstances. However, there has been a lack of consultation by the regulators with industry when it comes to cryptocurrency law and policy, especially when it comes to securities legislation.
By some estimates, the global cryptocurrency market is worth almost $900 billion. In 2019, the Canadian Securities Administrators and IIROC published joint CSA/IIROC consultation paper 21-402, “Proposed Framework for Crypto-Asset Trading Platforms”. A lot has changed in the industry since 2019, including new technological developments and a lot of new industry participants. For an industry of this size, we should expect to see more than one consultation paper, which only had roughly 50 responses. When compared with other novel securities-like products, such as derivatives and contracts for difference—products that have substantially lower market popularity—there has been virtually no consultation with the Canadian crypto industry.
One concern I've heard from clients is that the law is effectively being made via private orders and terms and conditions imposed on private companies, with the terms and conditions unique to a particular crypto company and not applying to every single company in every circumstance.
This is not an appropriate way to legislate a fast-growing industry in Canada. There needs to be more consultation with the public on how proposed policies might affect Canadian businesses in the space in a burgeoning global industry with more transparency into how regulators are developing policy and what policy concerns are being addressed. There are instances where existing law isn't best suited to regulate certain crypto products, such as fiat-anchored stablecoins.
Finally, Canada is at risk of lagging behind other developed countries when it comes to digital finance. For example, for the second time in a row, Payments Canada has delayed the launch of the Real-Time Rail payment system, as it was first announced to be delivered in 2022 and was then rescheduled to launch in mid-2023. No revised timeline has been given by Payments Canada as part of its most recent delay announcement. Similarly, the open banking system has been delayed until 2023, putting Canada and Canadians at a disadvantage.
Thank you for your time.
That concludes my written submission.