‘No easy feat’: How Coinberry became Canada’s first regulated crypto-only trading platform

Andrei Poliakov, Coinberrys chief executive officer and co-founder, spoke with Stephanie Hughes about what it takes to become a regulated exchange in Canada

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Getting nationwide regulatory approval for a crypto exchange is no easy task. But after years of consulting with Canadian regulators, Coinberry became the first pure-play, crypto-only trading platform (and second overall) to be fully registered across all of the provinces and territories in August. Andrei Poliakov, Coinberrys chief executive officer and co-founder, spoke with the Financial Posts Stephanie Hughes about what it takes to become a regulated exchange in Canada. This interview has been edited and condensed.

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Q: Can you walk me through Coinberrys process of receiving regulatory approval? What were some of the major steps involved?

A: We were one of the first companies to actually become registered with FINTRAC well before it was actually necessary to do so. We approached the Ontario Securities Commission and it was a very interesting discussion because everybody was very green on their end. But we walked them through the business and we started to sort of build this relationship with them at the end of the day, this is a very nascent industry and theres a lot of unknowns and a lot of things that people have to just get comfortable with and a lot of knowledge-sharing.

In 2018 and 2019, they paid a number of visits to our offices and, again, had us walk them through all of our procedures. Then in late 2020, we filed the final package to the OSC and in January of this year they brought us in front of the Canadian Securities Administrators, so all of the provincial regulators across the country.

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We answered a number of questions that the CSA members had, followed by a number of months of back and forth, answering questions as each provinces security commission went through our file. You have to make sure that everybodys comfortable to sign off on the decision. Fast-forward eight months: finally, in the second-half of August, we received our registration exemptive relief status.

Coinberry became the first pure-play, crypto-only trading platform (and second overall) to be fully registered across all of the provinces and territories in August.
Coinberry became the first pure-play, crypto-only trading platform (and second overall) to be fully registered across all of the provinces and territories in August. Photo by Courtesy Coinberry

Q: What are some of the hurdles that crypto exchanges face in applying for registration?

A: Our position is that theres a balance between allowing companies to innovate and to flourish and regulatory oversight that provides security and safety for investors. We believe that when that balance is met, thats the proper place to be as an industry. You cant have an industry thats completely especially our industry unregulated because you end up with some of the not-so successful stories that we all know happened in Canada.

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On the other hand, if you have overly burdensome regulation, you stifle innovation entirely and so thats also not conducive to growth and bringing value and bringing new technologies to Canadians. As far as were concerned, the Canadian regulators and the OSC have been very balanced. Ultimately, at the end of the day its all about investor protection.

Q: Were there any speed bumps at all?

A: The fact that the process itself took over three years if somebody told me from when we started this is gonna take three years, I dont know how we would have handled that. You take it one day at a time at the end of the day but it is a lengthy process, its an expensive process.

Q: Given the length and costs involved in this process, do you think smaller exchanges will even bother?

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A: This process is no easy feat. Its expensive and there will be companies that will be exiting the market. Weve seen big, big international exchanges exiting. Were having discussions with several Canadian players that are not going through the process. There will be a consolidation period that will take place in the industry because of this, undoubtedly. There will be companies that will just simply not bother to go through this process and will ultimately sell or merge with companies such as ours.

Q: The OSC granted you a two-year window to operate your platform in Ontario what do you plan to do in that time?

A: Within this timespan, one of the points of the decision document is that we have to become a member of IIROC, and ultimately that two-year period allows us to do that. We intend to become a member of IIROC and continue operating a business, so getting this registered status is not the end goal for us, its the first step. Well be putting out some very innovative products soon. Those lending products or credit-based products are all sort of based on a foundation of blockchain cryptocurrency products and DeFi products. We have a very exciting roadmap to a future ahead of us.

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Q: Is crypto lending part of that product group? This has been an issue between Coinbase and the SEC. Is that something you dont want to touch or is it an evolving conversation?

A: Everythings an evolving conversation. Were following what the SEC is doing with Ripple, were following with what the SEC is doing with Coinbase. I see what Coinbase is doing, how theyre pushing the industry forward.

Youve got to keep in mind with both Coinbase and Coinberry, were brokerages. So, we sell when somebody buys, theyre buying a contract for delivery right. The Bitcoin is held on behalf of the client until they withdraw it off the platform. Until such time, what we are offering the client is basically an IOU so that IOU is the security and why we needed to get registered. You have to start asking yourself the question: if youre lending out crypto, youre actually lending out the asset itself, not necessarily the security. So, is that a registered activity? The SEC clearly thinks it is, Coinbase clearly thinks its not. Well see what ends up happening.

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Before we get to crypto lending, there are a lot of other really exciting products that we have on the roadmap that we want to put out there. Its a little more, lets say, vanilla from a regulatory perspective.

Q: You said that you intend to work more closely with regulators. What more needs to be done, in your opinion?

A: Were in a spot now where we have Coinberry and another platform [that have] received registration and exemptive relief. We know that there are a lot of platforms in Canada that offer crypto lending services to Canadians right now. I would like to see, ultimately, further enforcement of platforms that are not in-line with the regulators requests and some of what the regulators have published that platforms have to do. Because we have a situation where we have platforms that are to the point of whats required, and you have others that are not. Of course, that puts us at a competitive disadvantage.

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Canadians deserve to have the ability to lend out their crypto, I truly believe that. I also believe that they deserve to do that in a safe, secure and convenient manner and on the safe secure community platforms such as Coinberry.

Q: Have any questions stood out or came up more often than others?

A: I think one question that definitely came up multiple times, which is very important is, Where do we custody the crypto assets we hold up for clients? This is very important because we do custody with a qualified custodian that offers over $200 million worth of insurance and then we self-insure as well. Across everything, all the crypto assets we hold in trust are insured.

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Q: How are you going to ensure your company remains in-line with compliance standards?

A: We brought on a very senior individual, our chief compliance officer from Laurentian bank, and shes been phenomenal at putting in place the required checks and balances on the audit procedures internally. Ultimately, the decision that the OSC put out is very detailed. Its a lengthy document, but it is quite detailed in stipulating some of the points that were responsible for. Of course, there are also regulatory requirements that we have, and laws and acts in place that we have to abide by that are even outside the decision itself. But we have a phenomenal team that weve been growing.

As we continue our regulatory journey you always have to make sure that your processes grow with you such that at the end of the day, investor protection and investor interest is always at the top of our goals.

Financial Post

Email: shughes@postmedia.com | Twitter:

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