Industry Committee on Dec. 8th, 2022

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Is there adequate guidance in Canada in that regard right now?

[Tanya Woods]

No.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

How far behind are we with regard to other countries? How much is the lack of this type of guidance costing the economy right now?

[Tanya Woods]

That's a good question. I'm going to tip to anybody in the panel who can answer with hard numbers. I'd rather answer with hard numbers. However, the broad answer is quite a bit: We're very behind. We've lost the confidence of our innovation community, because we don't see where we're having support.

I think that's a broad statement but quite likely true across the board.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

I would encourage all the panellists to provide information on those hard numbers.

In closing, I had really hoped that the conversation around this issue would be deeply non-partisan, given the importance of this sector, potentially, to the growth of the Canadian economy. Would you characterize it as productive for any political actor to politicize the entire industry of Web3 as a platform, as opposed to trying to achieve a regulatory framework that both achieves protections for consumers and sets Canada up for growth?

[Tanya Woods]

No, it's not productive. I think too much politicization has happened. It's time to get back to work.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

In closing, would you recommend that this committee express to the government the importance of the Web3 ecosystem in terms of the long-term growth of the Canadian economy?

[Tanya Woods]

It's fundamental. The government has been very supportive of the video game industry. I sit on the board of a publicly traded metaverse stage and production facility, the only one in Canada. It's groundbreaking; it's leading, and it's founded by video game industry veterans. They've struggled to get funding. I've never seen this kind of struggle happen before in the games industry, but technology and content digitization evolve, as does the digitization of every industry sector. It's time to look at it together, holistically. These are not partisan issues.

Thank you.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Madam Woods and Madam Rempel Garner.

We'll now turn to Mr. Gaheer for six minutes.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you, Chair, and thank you to the witnesses for appearing before the committee.

My first question is a general one, I think everyone would agree. Do you agree that a lack of regulation creates a risky environment?

Ms. Woods, there are fears that a lack of regulatory oversight will lead to scams and market manipulation. Among the high-profile cases is OneCoin, which was revealed as a Ponzi scheme. People felt like they were getting in because they didn't want to miss out on the next Bitcoin. Do you agree that a lack of regulation creates a risky environment?

[Tanya Woods]

It does, without a doubt.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Yes. So how does a government go about regulating it? The decentralization of authority means that no one's empowered to enforce law and order in the network, with no moderators, leaders or regulatory body. Moreover, since the users are in different countries, it means you're crossing jurisdictional grounds. How do you go about regulating?

[Tanya Woods]

One must start in this way—informing oneself. The other way is that one must continue engaging the industry. I'm certain that all the participants online would have a view of their own individual niche and aspect of this, but it starts with education. The challenge is that you can't sit and wait until you feel educated. You need to start engaging in dialogue with industry, because this innovation moves incredibly quickly.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you.

Mr. McWaters, you mentioned asset-specific regulations. Could you speak a bit more about that?

[Jesse McWaters]

The core of what I was trying to communicate is that we have established regulation that governs particular types of activities. It's in the interests of the Canadian people to ensure, wherever possible, that we achieve consistency across that.

I can give an example. Within the context of making payments—for example, on a peer-to-peer or a person-to-merchant basis—we should strive to have anti-money laundering with sanctions, screening and KYC requirements applied consistently across those, whether one is using a peer-to-peer app, a Bitcoin, a credit card or some other form of payment technology. Otherwise, we see regulatory arbitrage and we see activity flowing towards less regulated and less effectively supervised aspects of the payment system.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Great. Thank you.

We have a lot of witnesses today. Does anyone else want to speak on the regulation and the fact that it's so decentralized?

Go ahead, Mr. Mills.

[Brad Mills]

Thank you.

Mr. Chair, I take a bit of a step back from a lot of the conversation about Web3 and comparing that to Bitcoin.

Web3 is typically a marketing term. It's an all-encompassing term that covers things like NFTs, security tokens and DAOs.

For a lot of the stuff, existing regulations can address a lot of these use cases, whereas something like Bitcoin is decentralized. There is no central party. There's no company that controls Bitcoin. Nobody can enforce changing the monetary policy of Bitcoin or issuing more coins. You're not reliant upon the efforts of others. We have clear definitions around what makes something a security. A lot of times these Web3 projects are run by companies. I agree that we should have regulatory clarity, but I feel as though we do kind of have regulatory clarity. It would just be better if we would come together and make clear what a proper path forward would be.

There's nothing wrong with digital securities. There's nothing wrong with a coin, like FLO coin or something, being registered with the Canadian securities agencies. There's nothing wrong with being a digital security and trading compliantly. It's just that currently, there's a lot of undisclosed risk in these things for investors, like large grants of coins for anonymous founders or team members or venture capitalists who can take these extra bags of coins they got in the early launch of their project and maybe even issue more.

I would also love to be part of the conversation. Bitcoiners would love to be part of the conversations, because you really can't lump Bitcoin in with the rest of everything else that's going on.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Mr. Anani.

[Namir Anani]

Thank you.

If you look at the example of the market and the regulations in Europe in terms of markets and crypto-assets, they looked at utility tokens. They actually left Bitcoins and Ethereum out of this outlook. They looked at utility tokens and stablecoins and NFTs, specifically if they fractionalized, because then they become a security.

What is important here is that they looked at not only how to create consumer confidence but also how to create more stability in the marketplace and attract investment. Europe is a large market for crypto-assets. It represents 25% of the world economy in terms of crypto-asset trading.

I think if we're going to develop a regulatory system to manage that from a consumer point of view, capping certain trading, as MiCA has done on certain transactions up to $200 million per day, which is a small amount, then we have to go beyond that and send a signal that we are in an innovation environment in which experimentation is going to be important, and that we're going to allow for regulatory sandboxes.

It's true that regulators have to work directly with industry because that's where the main knowledge and innovation take place, but we have to allow for some regulatory sandboxes to do that experimentation, to have a better understanding of intended and unintended consequences, whether in terms of the period of time, capping trading or demanding specific aspects that could be measured at a specific period of time to make that happen.

That would be my recommendation on that.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you.

I think I'm out of time.

[The Chair, Liberal, Joël Lightbound]

Mr. Gaheer, your time is indeed up.

I see that Ms. Bouchard has her hand up and since she is from Université Laval, which is dear to my heart, I will give her a bit of time to briefly respond.

[Prof. Charlaine Bouchard]

I think that it is now time to intervene and protect consumers. We have been conducting experiments for several years now. Think about the FTX scandal. I believe that is the most obvious example of the need to protect consumers.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Ms. Bouchard.

Mr. Déziel, I will give you the floor as long as your comments are very brief.

[Guillaume Déziel, Administrator, Digital Governance Institute]

Thank you, Mr. Chair.

I completely agree. I think that regulation is needed to protect people because, if not, they do not have any alternative or a safe place to go. At the very least, the financial market authorities must be able to send and train workers to help people in this area.

Without those resources, people are being thrown to the wolves. They are being left to fend for themselves. One of my family members got duped by an untrustworthy broker. It is important to remember that blockchains are a place where brokers disappear. Those who claim to be brokers are not necessarily dangerous, unless they are not regulated.