Bitcoins are a digital currency and have become widespread on
the Internet and some companies have begun to accept these items as
payment for real goods and services. At the time of writing,
Bitcoins are not explicitly and specifically governed by any laws
or litigation and to our knowledge, no Canadian regulator has
publicly taken a position as to whether or not Bitcoins should be
regulated and if so, how.
However, while there is no certainty at this stage, the sale (or
exchange) of Bitcoins may fall under the scope of "Money
Services Businesses" because they may be considered:
If so, Bitcoins may trigger the application of the laws
regulating money services businesses including
anti-money-laundering laws and rules governing foreign
exchange. Regulators in charge of implementing those laws,
especially securities regulators and the Financial Transactions and
Reports Analysis Centre of Canada (FTRAC), have significant powers
that allow them to interpret broadly to include Bitcoins in their
fields of application.
In Québec, money-services businesses are subject to
several obligations such as:
holding a license;
paying annual fees;
being of good moral character;
verifying the identity of its customers;
maintaining records and registers; and
filing of prescribed reports, documents and statements
Under federal legislation, money services businesses must
register with the FTRAC. In addition, they have several
obligations such as: taking specific measures to ascertain the
identity of individuals and entities with which they are dealing;
as well as reporting and record keeping requirements. In
addition, if the money services businesses are subject to the
Proceeds of Crime (Money Laundering) and Terrorist Financing
Regulations, they must report:
possession or control of property that is owned or controlled
by or on behalf of a terrorist or terrorist group;
large cash transactions involving amounts of $10,000 or more
received in cash; and
international electronic funds transfers of $10,000 or more,
including the transmission of instructions for a transfer of funds
made at the request of a client through any electronic, magnetic or
optical device, telephone instrument or computer
In addition, although not obvious, Bitcoins could be considered
a "security" or a "derivative" under applicable
securities legislation. As a consequence of that
interpretation, in order to move forward with the Bitcoins
activities, you would have to comply with all obligations of
securities issuers or distributors, which may entail dealer
registration, prospectus delivery and other requirements, unless
exceptions are available.
Finally, if you perform Bitcoins activities, you may also have
to comply with consumer protection legislation in each of the
provinces in which your clients are located. For instance,
the Consumer Protection Act (Québec) (CPA) governs all
contracts entered into with consumers via the Internet (i.e.,
without being in the consumer's presence). The CPA
provides that a merchant must disclose specific information in a
certain format before entering into such a contract.
Given the high degree of uncertainty in Canada with respect to
carrying out Bitcoins activities and given the resulting high
degree of legal risks associated with Bitcoins, in our view the
most appropriate way to mitigate these risks is to consult with the
relevant regulators in order to obtain prior approval or guidelines
before carrying out Bitcoins activities.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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