In a bid to respond more “quickly to cryptocurrency failures” such as the QuadrigCX collapse, Canada’s top investment industry regulator implemented new digital asset custody rules that tighten standards on digital asset custody.
The industry-led Canadian Investment Regulatory Organization (CIRO) said its new Digital Asset Custody Framework is designed to allow it to respond more quickly to risks including hacking, fraud, weak governance and insolvencies that have left investors exposed in past incidents.
“Many of the expectations in the framework were developed in close consultation with [crypto-asset trading platforms] and its custodians and reflect practices that already exist,” 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 QuadrigaCX collapse in 2019 remains one of the most egregious failures in Canadian cryptocurrency history, with $123 million still unaccounted for. Its chief executive, Gerald Cotten, died and client funds were discovered to be missing. Subsequent investigations described co-founder Michael Patryn as allegedly deeply involved in the exchange’s operations during the period in which the misappropriations occurred.
“Custody is one of the most critical risk points in the crypto ecosystem,” said Alexandra Williams, senior vice president of strategy, innovation and stakeholder protection at CIRO.
A central feature of the guidance is a tiered, risk-based structure that allows firms to diversify and strengthen custody arrangements while maintaining strong investor protections.
The first signs that expectations need to be updated
CIRO said it would treat emerging cyber and custody risks, repeated supervisory issues across firms or changes in market practices as early warning signs that expectations may need to be updated.
“If we see that expectations are no longer aligned with how custody risk manifests in practice, CIRO would update the framework proactively, rather than waiting for a failure to occur,” the regulator said.
Canada has taken a cautious approach to cryptocurrency regulation, subjecting trading platforms to existing securities rules and emphasizing investor protection through registration, custody and disclosure requirements. More recently, federal measures on stablecoins and an expanded supervisory role for the Bank of Canada suggest a slow shift toward a broader national framework for digital assets.
CIRO, a self-regulatory body that sets standards for investment dealers, mutual fund dealers and trading activity in Canada, which has quasi-judicial authority to investigate misconduct and enforce disciplinary actions, including fines, suspensions and permanent bans.
