In an effort to respond more “quickly to crypto failures” such as the collapse of QuadrigCX, Canada’s top investment industry regulator rolled out new digital asset custody rules that tighten digital asset custody standards.
The industry-leading 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 previous incidents.
“Many of the expectations in the framework have been developed in close consultation with [crypto-asset trading platforms] and their custodians and reflect pre-existing practices,” a CIRO spokesperson told CoinDesk, adding that transitional considerations will be applied on a case-by-case basis.
“The new framework also provides a balance between flexibility and risk management that supports innovation while ensuring strong investor protection,” the spokesperson added.
Deeply involved in the breakdown
The collapse of QuadrigaCX in 2019 remains one of the most infamous failures in Canadian crypto history, with $123 million still unaccounted for. Its CEO, Gerald Cotten, died and client funds were found to be missing. Later investigations described co-founder Michael Patryn as allegedly deeply involved in the exchange’s operations during the period in which the misappropriation occurred.
“Custody is one of the most critical points of risk in the crypto ecosystem,” said Alexandra Williams, CIRO’s senior vice president of strategy, innovation and stakeholder protection.
A key feature of the guidance is a tiered, risk-based structure that allows companies to diversify and strengthen custody arrangements while maintaining robust investor protection.
Early signs that expectations need to be updated
The CIRO said it would treat new custody and cyber risks, repeated supervisory issues across firms or shifts in market practices as early warning signs that expectations may need to be updated.
“If we see that expectations no longer match how depository risk manifests in practice, CIRO will update the framework proactively rather than waiting for a failure to occur,” the regulator said.
Canada has taken a cautious approach to crypto regulation, bringing trading platforms under existing securities rules and emphasizing investor protection through registration, custody and disclosure requirements. More recently, federal moves 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 activities in Canada, which has the quasi-judicial authority to investigate misconduct and enforce disciplinary actions, including fines, suspensions and permanent bans.
