Defining the Regulatory Perimeter for Stablecoins in Canada

Canadian Business Law Journal (Forthcoming, September 2022)

29 Pages Posted: 14 Jun 2022

See all articles by Ryan Clements

Ryan Clements

University of Calgary Faculty of Law

Date Written: June 11, 2022

Abstract

Stablecoins are digital assets that are widely used in decentralized finance applications and in crypto-asset trading strategies. This innovation has potential consumer utility, but it also creates many risks. Currently, there is no overarching regulatory framework for stablecoins in Canada, and no authority has asserted jurisdiction over the operations of their issuers. This article is the first scholarly work to provide a detailed assessment of the jurisdictional perimeter, and risk-informed regulatory design principles, for fiat-backed stablecoins in Canada. It provides two unique and vital contributions to policy formation in stablecoin regulation. First, it analyzes whether stablecoins are securities, investment funds, or derivatives based on statutory definitions and interpretive jurisprudence. Second, it assesses whether a securities-based regulatory framework is sufficient to mitigate the risks that stablecoins pose, or if it leaves gaps that must be filled by banking, payments, and systemic risk regulators. While securities authorities have a reasonable case for legal jurisdiction over stablecoins based on how they are currently used, there are several “gaps” if stablecoins are exclusively regulated under securities law, and while many protections are provided, the full breadth of risks will not be mitigated. If Canadian securities regulators move forward with a stablecoin policy framework, they must do so with an eye to resulting gaps. Ultimately, a comprehensive framework will require inter-agency cooperation, across the financial regulatory landscape, to adequately address all stablecoin risks. It must apply “same risk, same regulation” principles, contextualized to support innovation, financial inclusion, and competition, using tiered parameters, and parallel and complementary inter-agency oversight. It must seek international regulatory cooperation, data-sharing, and contemplate contagion, interconnection, and the consequences of the potential failure of a global stablecoin issuer.

Keywords: stablecoin, crypto-asset, crypto, cryptocurrency, digital asset, payment, systemic risk, Canada, securities regulation, securities, banking

JEL Classification: E42, E40, G20, K22, O16, O30, O31, O51

Suggested Citation

Clements, Ryan, Defining the Regulatory Perimeter for Stablecoins in Canada (June 11, 2022). Canadian Business Law Journal (Forthcoming, September 2022), Available at SSRN: https://ssrn.com/abstract=4134010 or http://dx.doi.org/10.2139/ssrn.4134010

Ryan Clements (Contact Author)

University of Calgary Faculty of Law ( email )

Murray Fraser Hall
2500 University Dr. N.W.
Calgary, Alberta T2N 1N4
Canada
4036191173 (Phone)

HOME PAGE: http://https://law.ucalgary.ca/profiles/clements

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