Newton Granted Exemptive Relief by OSC to Operate as a Restricted Dealer – Immediately Imposes Trading Restrictions

Digital assets are becoming increasingly functional, with their popularity following suit.  As a result, regulators have begun cracking down on service providers, in an attempt to reign in a sector which was once compared to the ‘wild west’.  Within Ontario, the most populous province/territory in Canada, much of this task falls on the Ontario Securities Commission (OSC).  A recent example of this involves Newton, a popular digital asset exchange, which has just announced its successful registration with the regulatory body, along with new impositions being placed on many of its clientele.

OSC Registration

The registration granted to Newton by the OSC is one that allows the exchange to operate as a ‘Restricted Dealer’.  This designation does come with certain caveats that limit the services Newton can offer.  For example,

• The Filer [Newton] only offers and only allows Clients to enter into Crypto Contracts to buy and sell Crypto Assets that are not each themselves a security and/or a derivative.
• The Filer does not offer Clients any advice or recommendations regarding transactions in Crypto Contracts or Crypto Assets, nor does the Filer offer discretionary investment management services relating to Crypto Contracts or Crypto Assets.

Conditions of its registration also note that the exchange must at all times utilize a licensed Custodian to  “…hold not less than 80% of the total value of Crypto Assets held on behalf of Clients”.  To meet this condition, Newton utilizes Coinbase Custody, while whatever remaining assets it holds are secured by Fireblocks in hot wallets.  Naturally, Newton must also adhere to the typical KYC/AML security measures in place today.

In being granted this registration, Newton now joins a growing crop of companies to have done the same – including WealthSimple, Fidelity Digital Assets, Coinberry, Bitbuy, and more.

The Impositions

Notably, while Newton has been successful in registering with the OSC, the exchange also announced various new restrictions that it is imposing on Canadian clientele.  An example of which includes a trading questionnaire to gauge clients knowledge, risk tolerance, and financial stability.  Most notably however, are what the exchange calls ‘Net Buy Limits’.

Net buy limits refer to a restriction on how much a client is allowed to purchase of what it calls ‘restricted cryptocurrencies’ (those deemed unrestricted are limited to Bitcoin, Ethereum, Litecoin, and Bitcoin Cash).

These restrictions work on a rolling 12mth period, and involve a $30,000 CAD limit on how much a client can buy.  It should be noted that, “Selling restricted cryptocurrencies will add space back to your limit (to a maximum of $30,000).”

Pre-Registration Undertaking

Newton is not the first exchange of its kind to register with the OSC, and it will not be the last.  Although some exchanges have opted to simply cease operations within Ontario, there are various that are currently navigating the pre-registration process.  These include,

For the time being these exchanges have been granted permission to continue operating, serving Canadians, despite not being fully registered.  Moving forward, it should be interesting to see if these exchanges follow Newton and the aforementioned net buy limits.