• D. Jeff Larkins

CSA Outlines Disclosure Expectations for Public Companies and Crypto Assets



The Canadian Securities Administrators (the "CSA") have issued CSA Staff Notice 51-363 - Observations on Disclosure by Crypto Assets Reporting Issuers (the “Notice”, the full text of which can be found here) to improve the quality of disclosures provided by issuers that engage materially with crypto assets. The Notice outlines the disclosure expectations of CSA staff in key areas such as safeguarding crypto assets, the use of crypto asset trading platforms, risk factors, material changes and promotional activities. The Notice also provides guidance to crypto asset issuers on navigating certain complex accounting and disclosure issues.


The CSA notes that, in Canada, most crypto asset issuers started entering the public markets in 2017 or 2018 through a restructuring transaction with, or a change of business by, an existing reporting issuer. The Notice describes CSA staff observations from their review of these initial disclosures. Given this timing, most of these reporting issuers completed their first annual disclosure filings in 2019 for their annual reporting period ending in 2018.


Interestingly, the Notice provides a snapshot of Canadian crypto assets reporting issuers through various graphs and charts included in the Notice, suggesting:

  • as at December 31, 2020 almost two thirds of Canadian crypto assets reporting issuers had designated the British Columbia Securities Commission as their Principal Regulator under securities law;

  • as at December 31, 2020 just over half of Canadian crypto assets reporting issuers were listed on the Canadian Stock Exchange (CSE) with well over half of the remaining reporting issuers listed on the TSX Venture Exchange (TSXV);

  • as at December 31, 2020 just under half of Canadian crypto assets reporting issuers indicated “mining” as their primary business activity, “block chain technology” was the second primary activity noted with just over a quarter and “investment” third with about a quarter of Canadian crypto assets reporting issuers; and

  • Bitcoin was the primary asset holding of Canadian crypto assets reporting issuers by far.

The main purpose of the Notice, however, was to outline several disclosure observations and related guidance based on the first annual filings by reporting issuers (other than investment funds) that engage materially with crypto assets via mining and/or the holding/trading of those assets (crypto assets reporting issuers or issuers). These included:


Safeguarding of Crypto Assets. Securities legislation in Canada requires reporting issuers to disclose the material risks affecting their business and, where practicable, the financial impacts of such risks. For crypto assets reporting issuers, the controls adopted to guard against the risk of loss and/or theft associated with holding such crypto assets is a material risk important for investors. In light of this, CSA staff focused on the disclosure of such controls and noted that the failure to adopt adequate protections may give rise to public interest concerns about the issuer.


Use of Crypto Asset Trading Platforms. CSA staff noted that the use of, and reliance on, crypto asset trading platforms raises issues that extend beyond an issuer’s own controls (for example, issuers that hold crypto assets through a crypto asset trading platform generally do not hold the private key and do not have control over the assets). To the extent that an issuer relies on a crypto asset trading platform to hold its crypto assets, CSA staff outlined their expectations as to disclosure.


Description of Business. CSA staff reminded issuers that the description of an issuer’s business in its continuous disclosure filings, as well as any prospectus, should be sufficiently detailed to enable investors to make an informed decision about whether to buy, sell or hold the issuer’s securities. CSA staff outlined a number of matters that, given the relative novelty of the crypto industry, they would consider likely to be material information for investors.


Risk Factor Disclosure. CSA staff again reminded issuers that risk factor disclosure should be specific and sufficiently tailored to the risks that relate to the issuer and its business and outlined a number of risk factors likely applicable to crypto asset issuers. CSA staff also noted that risks related to different forms of crypto assets may, and likely do, differ.

Promotional Activities. CSA staff reminded issuers should not engage in promotional activities that provide unbalanced or unsubstantiated material claims about the issuer’s business and the corresponding opportunity for profit by investing in the issuer and referred issuers to CSA Staff Notice 51-356 - Problematic Promotional Activities by Issuers generally.


Material Changes. The Notice set out securities law requirements that all reporting issuers have an obligation to consider whether an event constitutes a material change (i.e., a change in its business, operations or capital that would reasonably be expected to have a significant effect on the market price or value of any of its securities). If so, issuers are required to immediately issue and file a news release authorized by an executive officer disclosing the nature and substance of the change and, as soon as practicable and in any event within 10 days of the date on which the change occurs, file a material change report with respect to the material change. CSA staff noted several examples specific to crypto asset issuers failing to file material change reports or failing to do so within the required 10-day period.


Issuers Whose Business is Investing in Crypto Assets. The Notice suggests CSA staff’s views as to when and if “Investment Fund” (a defined term under securities law) requirements may apply, pointing out that if a material aspect of an issuer’s business is investing in crypto assets and the issuer does not have other substantial operations, despite the fact that the issuer may not meet the definition of an investment fund , many of the investor protection considerations applicable to investment funds may be relevant and staff may take positions, on a case-by-case basis, to ensure those considerations are addressed. The Notice also refers to the need, in certain circumstances, to provide a meaningful discussion of an issuer’s performance that meets the requirements of Form 51-102F1 - Management’s Discussion & Analysis, including information about the issuer’s crypto assets and other portfolio holdings.


Financial Statements. As there are unique aspects of the crypto asset industry that raise novel accounting issues, CSA staff reminded issuers to monitor guidance published by accounting standard setters and regulatory bodies and outlined considerations that staff believe are relevant to crypto issuers who face certain complex accounting and disclosure issues.


Auditing Issues. As a number of novel auditing challenges have arisen in the crypto asset industry, CSA staff reminded issuers, and their audit committees and advisors, to review guidance that has been published by the Chartered Professional Accountants of Canada and communications from the Canadian Public Accountability Board.


Endeavor Law can assist Canadian crypto assets start-ups and reporting issuers with applicable Canadian securities law compliance and regulatory matters and help such issuers and their directors and executive officers navigate the securities regulatory landscape. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client.


Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstance. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.