In a bid to respond more “rapidly to crypto failures” like the QuadrigCX collapse, Canada’s top investment industry regulator has rolled out new digital asset custody rules tightening standards for digital asset custody.
The industry-led Investment Regulatory Organization of Canada (OCRI) said its new digital asset custody framework is designed to allow it to respond more quickly to risks including hacking, fraud, poor governance and insolvency that have exposed investors in past incidents.
“Many of the framework’s expectations were developed in close consultation with [crypto-asset trading platforms] and their custodians and reflect practices already in place,” a CIRO spokesperson told CoinDesk, adding that transition considerations will be applied on a case-by-case basis.
“The new framework also provides a balance between flexibility and risk management, supporting innovation while ensuring strong investor protection,” the spokesperson added.
Deeply involved in the collapse
The collapse of QuadrigaCX in 2019 remains one of the most notorious failures in Canadian crypto history, with $123 million still missing. Its CEO, Gerald Cotten, died and customer funds disappeared. Subsequent investigations described co-founder Michael Patryn as allegedly being deeply involved in the exchange’s operations during the period in which embezzlements took place.
“Custody is one of the most critical points of risk in the crypto ecosystem,” said Alexandra Williams, CIRO’s senior vice president of strategy, innovation and stakeholder protection.
A central part of the guidance is a risk-based, tiered structure that allows companies to diversify and strengthen custody arrangements while maintaining strong investor protections.
Early signs that expectations need to be updated
CIRO said it would treat emerging conservation and cybersecurity risks, repeated oversight issues at companies, or changes in market practices as warning signs that expectations may need to be updated.
“If we find that expectations no longer match how conservation risk manifests in practice, the CIRO would update the framework proactively, rather than waiting for a failure to occur,” the regulator said.
Canada has taken a cautious approach to crypto regulation, subjecting trading platforms to existing securities rules and emphasizing investor protection through registration, custody and disclosure requirements. More recently, federal moves regarding stablecoins and the Bank of Canada’s expanded oversight role suggest a slow move toward a broader national framework for digital assets.
CIRO, a self-regulatory organization that sets standards for investment dealers, mutual fund dealers and trading activities in Canada, possessing quasi-judicial authority to investigate professional misconduct and enforce disciplinary measures, including fines, suspensions and permanent bans.
