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Summer 2018 – Canada Publishes Official Draft Of New Crypto-Regulation With Focus On KYC/AML

Other countries are beginning to define their positions on virtual currencies and crypto services. This time, the Canadian government has published a draft outlining its position towards crypto brokers and payment processors. 

In Summer 2018 the Canadian government has published an official draft for new regulations for cryptocurrency and payment processors via the Canada Gazette.

These new regulations aim to address problems identified by the Financial Action Task Force (FATF) following its initial assessment between 2015 and 2016. The aim is to strengthen Canada's anti-money laundering and anti-terrorist financing laws.

Critical Voices Regarding Crypto Trading in Canada

The new regulations count virtual currency exchange as a Money Service Business (MSB). This classification requires these exchanges to report all transactions above $10,000 CAD ($7700 USD).

In addition, the "Know Your Customer" (KYC) limit is set at $1,000 CAD ($770 USD), which means that traders cannot trade more than $1,000 unless they provide their name, address, phone number, occupation and date of birth.

Bitcoin Ownership In Canada On The Rise

On 14 December 2017, Stephen S. Poloz, President of the Central Bank of Canada, used these words to warn against cryptocurrencies and Bitcoin:

"There is one more thing that keeps me awake at night that I should perhaps mention, and that's all I hear about cryptocurrencies, especially Bitcoin. There's a lot of hype about Bitcoin and the markets are evolving to give people access to Bitcoin [...]. So perhaps you will allow me to make a few comments.

At first we should look at the term 'cryptocurrency', which is a wrong term - 'crypto', yes, but 'currency', no. For something to be considered a currency, it must be a reliable investment and you should be able to simply spend the currency. These properties are not the case at cryptocurrencies, so they are not 'money'."

Nevertheless, it turned out that Bitcoin is becoming more and more popular in Canada. The number of Bitcoin owners rose from 2.9 percent in 2016 to 5.0 percent in 2017.

The Canadian Central Bank wanted to understand why and whether people see Bitcoin as a currency or an investment. A two-year study and survey was conducted that began in 2016 and aimed to better assess the use, acceptance and knowledge of Bitcoin in Canada.

Bitcoin As An Investment

The main reason for owning Bitcoin has changed in the last two years. In 2016, people bought Bitcoin because they were interested in new technology (29 percent) and to make transactions for purchases or remittances (39 percent). Only 12 percent saw Bitcoin primarily as an investment. Technology and the currency aspect were the main reasons for ownership.

This changed in 2017. Only eight percent are still interested in the new technology and only ten percent use Bitcoin mainly for purchases or remittances. The main reason for owning Bitcoin is for investment purposes (58 percent). This change of mood can be attributed to the incredible price development towards the end of 2017.

How Banks React On Bitcoin Trading Platforms in Canada

Canadian Banks Restrict Bitcoin Buyers As Peer-to-Peer Trading Explodes

The Bank of Montreal, one of Canada's largest banks, followed other banking institutions and restricted crypto buyers.

In April '18, internals of the BMO leaked out and appeared on Reddit. The bank is preventing customers from making direct debits via Mastercard and Interac Online Payment to "better protect the security of their customers and the bank".

This makes BMO not the only Canadian bank to restrict crypto purchases. Scotiabank has blocked all purchases of cryptocurrencies with credit cards and another major service provider, the Toronto Dominion Bank, is also preventing customers from buying crypto assets with credit cards because such purchases "could expose them to much higher debt levels than they can repay".

Banks Facing Crypto Trading Platforms in Canada: Fear Of Competition

Not only Canadian banks are trying to defend themselves against the crypto industry, financial institutions such as Citigroup, Commonwealth Bank and Danske Bank are also taking action against cryptocurrencies - some user accounts are frozen without warning.
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However, this approach has been unsuccessful, at least in Canada. Instead of using banks for crypto shopping, we simply use forums or sites like Localbitcoins (prohibited in Germany, Bitcoin-Treff.de for German users). And the Localbitcoins website has seen a dramatic increase in Canadian customers this month.

P2P stock exchange portals, Bitcoin ATMs and local credit unions can always be used to buy cryptocurrencies. And as long as the demand for cryptocurrencies continues or even increases, the companies offering such services will continue to flourish.

Mining companies are also interested in Canada as a location: the electricity is cheap and the cold temperatures keep the mining equipment cool.

However, Canadian Government Relies On Blockchain Technologies

Of course, there are also other companies that do not want to take action against cryptocurrencies. The TMX Group, for example, is planning its own service for cryptocurrencies.

Also the Canadian government sees the Blockchain technology further as positive. In January '18 the "National Research Council Canada" announced the "first test of the public blockchain technology (Ethereum) for the transparent administration of government orders".

Canada is also working with the World Economy Forum to implement a blockchain-based ID system called Traveller Digital Identity.

Since both systems are still in the initial planning and testing phase, it may take a while for both projects to be ready for the masses.