'It's a very big deal': Coinsquare gets IIROC approval in crypto world first

An illustration picture taken in London on May 8, 2022, shows a gold plated souvenir cryptocurrency Tether (USDT) coin arranged beside a screen displaying a trading chart. - Tether (USDT) is an Ethereum token known as a stablecoin that is pegged to the value of the US dollar, and is currently the largest stablecoin with a market value of USD 83 billion dollars. (Photo by Justin TALLIS / AFP) (Photo by JUSTIN TALLIS/AFP via Getty Images)
Coinsquare is the first crypto-only trading platform to become registered with IIROC (Photo by Justin TALLIS / AFP) (Photo by JUSTIN TALLIS/AFP via Getty Images) (JUSTIN TALLIS via Getty Images)

Crypto-trading platform Coinsquare has crossed the finish line to become a member of the Investment Industry Regulatory Organization of Canada (IIROC) in a first for the Canadian crypto sector.

The regulatory body announced late Wednesday afternoon that Coinsquare is now registered as an investment dealer.

The new registration will bring a number of changes to the exchange. It will have to fully segregate client assets through a licensed and insured custodian, be subject to more stringent operational controls, keep more capital on hand and regularly report on the state of its balance sheet.

It also means cash held in client trading accounts will be insured by the Canadian Investment Protection Funds.

"I personally think that it's a very big deal," Matt Burgoyne, a partner and co-chair of digital assets and blockchain at Osler, Hoskin & Harcourt LLP, told Yahoo Finance Canada in a phone interview.

"[IIROC] is historically a very conservative organization that licenses investment broker dealers. So, the more traditional financial sector. IIROC welcoming and accepting for registration a cryptocurrency exchange with retail users is a very significant development in the securities world and in the cryptocurrency world."

Coinsquare has also been approved to operate an Automated Trading System, allowing it to facilitate trading in illiquid coins, a practice that's common in traditional equity markets.

The platform will not be able to offer trading on margin or short sales, though it plans on working towards being able to offer these services in the future.

However, the ability to trade on margin could potentially add more risk to the already wildly volatile world of cryptocurrencies.

Burgoyne says there will likely have to be more "risk disclosure and education that's conveyed by the platform to the user" should Coinsquare want to offer leverage.

The company will not offer products such as bitcoin exchange-traded funds, and clients will still only be able to buy a maximum of $30,000 in crypto assets in most provinces.

"For the first time, Canadians have the opportunity to invest in crypto assets, knowing that they have full IIROC protections," Martin Piszel, chief executive officer of Coinsquare, said in a press release.

Coinsquare says it serves more than half a million Canadian customers.

The need for investor protections in the crypto trading world has consistently been at the forefront amid high-profile thefts of client assets and a myriad of crypto-related scams and scandals.

Just this week, trading platform Mango Markets reported US$100 million in funds were stolen during a cyber hack.

In 2021, securities regulators deemed that cryptocurrency exchanges did indeed fall under their jurisdiction and required them to register as restricted dealers to continue operating their marketplaces. The regulators also gave the platforms two years to work towards becoming registered as investment dealers with IIROC, the highest category of securities dealer registration.

All cryptocurrency exchanges currently registered as restricted dealers are working towards their investment dealer registration with IIROC.

On an international scale, Burgoyne says this brings Coinsquare a step closer to being able to better compete.

"The competitors to the Canadian crypto exchanges are large international crypto exchanges located offshore that offer all these different services and products like margin, futures trading, leverage," he said.

"Right now, all the regulated Canadian exchanges can't extend margin, credit or other forms of leverage so they're losing a competitive advantage to the large offshore international exchanges. Hopefully the Canadian IIROC-registered exchanges like Coinsquare will soon be able to offer margin and leverage which would even the playing field a bit."

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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