(Bloomberg) -- Canada’s recent moves to impose stricter rules on crypto companies show that US regulators have allies in cracking down on the asset class after last year’s turmoil. 

Canadian securities regulators in February gave a 30-day deadline for unregistered crypto trading platforms operating in the country to commit to a so-called pre-registration undertaking. Firms are required to follow tougher regulations on segregating customer assets and prohibited from offering margin or leverage to users in Canada. 

The new rules are prompting companies in the industry to make some hard choices about whether to comply and stay in the country or pull out. Some firms — including Coinbase Global Inc. and Binance — have signaled they intend to pursue registrations. But others, such as stablecoin issuer Paxos and decentralized exchange dYdX, have decided instead to wind up their Canadian operations.

The Canadian Securities Administrators previewed the guidance in December following the collapse of FTX, saying it illustrated the need for stronger oversight of the industry. Crypto platforms that are “unable or unwilling” to follow the new process should stop Canadian users from accessing their services, the regulators said. 

“It’s a reaction to recent events and lessons learned from those events,” said Matthew Burgoyne, a Calgary-based attorney for the law firm Osler, Hoskin & Harcourt LLP. 

The move comes amid a separate US crackdown on the industry, in particular through increased enforcement by the Securities and Exchange Commission and other bodies. The SEC altered a proposed rule Friday to make it more explicit that digital-asset exchanges and decentralized-finance platforms must register with the regulator. And it has proposed rules that would make it harder for crypto platforms to hold digital assets owned by clients of hedge funds and private equity firms. 

The agency has faced criticism from the industry and some US lawmakers who say the SEC has relied too much on enforcement and hasn’t done enough to provide clear guidance on registration and how securities rules apply to crypto trading platforms. 

Canada, meanwhile, has taken those steps, Burgoyne said. The country first proposed a broad framework for platforms in 2019, which was followed up by a 2021 notice from the CSA and the Investment Industry Regulatory Organization of Canada outlining how securities law applies to the business. 

Stay or Go? 

Some crypto firms have decided to leave the Canadian market, while others announced plans to pursue registration.  

Paxos is set to exit Canada and shut down accounts in the country, according to its website. DYdX began winding down services in Canada this month, moving all existing users to close-only mode, according to a company blog. 

In a statement to Bloomberg, Paxos said, “while our platform will no longer support Canadian customers in the immediate term, we will reassess our presence in this region in partnership with our clients’ evolving needs.” 

Burgoyne, whose client list includes companies that have decided to leave Canada and those that are staying, said the government isn’t intentionally trying to drive businesses away. “It’s actually quite the opposite,” he said. “They’re trying to allow crypto trading platforms to stay in Canada and operate, but just be subject to some disclosure requirements and rules and regulations that protect users from insolvency risks, fraud risks and hacking risks.”

However, the decision of some firms to exit the market is cause for concern, especially if it becomes a mass exodus, he said. If that trend continues, regulators should have a discussion with industry about the rules and what conditions the platforms are having issues with, said Burgoyne, who’s a member of the Alberta Securities Commission’s New Economy Advisory Committee.

“The CSA is committed to ensuring that market participants in Canada are protected when trading securities or derivatives, and that Canada’s capital markets remain fair, efficient and innovative,” Ilana Kelemen, a spokeswoman for the regulators’ group, said in an emailed statement. 

Other firms are reaffirming their commitment to Canada. Coinbase, Binance, Kraken and Gemini are among firms that have announced in recent weeks that they’ve filed a “pre-registration undertaking” in Canada. Coinbase said it hired a country director and has over 200 engineers Canadian. Gemini said it is a sub-custodian to many Canadian crypto ETFs. 

Binance’s Canadian affiliate said its paperwork — filed on behalf of itself, Binance Holdings Ltd. and founder Changpeng Zhao — outlines how it intends to operate, including its management and custody of user assets. 

Currently, only a handful of crypto trading platforms, including Fidelity Digital Assets Services and Bitvo Inc., have been authorized to do business in Canada, according to CSA’s website. KuCoin and Poloniex have been banned in the country. 

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