The Financial Markets Authority (AMF) went on the offensive this fall by condemning two foreign platforms specializing in the trading of cryptoassets which offered their services in Quebec without authorization to close their site in the province. The duty found that one of them was still accessible and that neither of the two platforms had to date paid the penalties of two million dollars demanded from them by the guardian of the financial markets.
In September, the Administrative Court of Financial Markets forced XT.com, a foreign cryptoasset platform, to block access to residents of the province. This popular platform allows you to trade 537 cryptoassets. Its daily trading volume is said to exceed 600 million US dollars.
For having offered these financial services without holding authorizations from the AMF, an administrative penalty of two million dollars was imposed on XT.com.
Two months later, the AMF did it again. The Hong Kong company CoinEx Global was in turn forced to block its platform in Quebec, and a penalty of two million dollars was imposed on it. “A clear message [doit être envoyé aux plateformes de négociation de cryptoactifs] which do not comply with securities legislation,” the AMF announced at the time.
However, it turns out to be more difficult to apply judgments than it seems. If XT.com complied with the requirements of the AMF, it is clear that the situation is different for CoinEx, where The duty was easily able to create an account.
“As for CoinEx and the initial users of XT. com, the Authority is actively studying its options to enforce these orders,” concedes Sylvain Théberge, spokesperson for the AMF.
“Given the difficulties in serving defendants located abroad, the Authority obtained permission from the Court in both cases to notify the procedural documents, including the judgment, by a special method of notification, which was done,” he explains.
The challenge facing Canadian financial authorities is real and significant, says Hélène Guilbault, coordinating investigator specializing in cyber investigations at the AMF.
“These are companies that are structured internationally with, often, several other companies that are located in different states and which are often difficult to trace. We don’t always know which company we are really dealing with,” she explains.
For example, CoinEx would be based in Hong Kong, but some activities would be carried out from companies registered in Estonia and Canada. It would also have a privileged partnership with an American company, Vino Global, which belongs to the same owner. “In fact, CoinEx, CoinEx Canada, CoinEx Estonia and Vino Global merge and act as one and the same person,” believes the AMF.
We don’t always know which company we are really doing business with.
The situation is similar when we look at the structure of the XT.com platform. Based in the Republic of Seychelles, this platform would be managed from Dubai and owned by BZ Limited, a Hong Kong company.
This opacity harms the understanding of the functioning of these companies. “One of the important elements that platforms that do not have authorizations are criticized for is not having put in place fund protection mechanisms for those who invest there. Are the funds held in trust? Are there this type of protection mechanisms? We don’t know,” says Mme Guilbault.
A growing industry
A concern that is all the greater as the popularity of cryptoassets is growing. Since 2020, the number of users trading on cryptoasset exchange sites has jumped from 73 million to 670 million last year. It should approach one billion in 2028 (992 million), according to forecasts put forward by Statista.
And that would only be the beginning. Valued at nearly $45 billion in 2022, the cryptoasset trading platform market is expected to exceed $110 billion in 2028, according to forecasts from Ariston, a firm specializing in the analysis of digital markets. This would be an annual increase of over 15%.
Canadian financial authorities — including the AMF — have gone on the offensive in recent years. This has resulted in a phenomenal growth in the number of public warnings sent out each week by Canadian authorities.
For now, Canadian authorities are targeting the most popular platforms. “We work with the authorities of other provinces. The choice of platforms that we target is based in particular on the number of Canadians that they can reach, those that have the greatest reach, because like the police, with our limited resources, we cannot stop them all. indicates Mme Guilbault.