Kraken, one of the biggest names in digital currency trading, is not in agreement with the proposal that Canadian finance regulators have presented with regard to cryptocurrency exchanges operating in the Great White North. The exchange platform published a Twitter update pointing to a white paper explaining its position, which takes exception to financial services contracts being considered securities.
As the situation stands, cryptocurrencies in Canada are not considered to be financial securities; they are deemed to be digital assets. One of the views that regulators are taking when present their proposals is similar to the way they view forex exchanges. Let's say you deposit Canadian dollars into an online forex account, your money is not a security even if you exchange it to euros; however, things change when you pick a currency pair, take a market position and trade on margin. At such point, you are speculating as an investor and borrowing funds from the brokerage, thereby establishing a securities contract.
What Canadian regulators seem to have in mind is a regulatory framework that would treat the financial services relationship between a cryptocurrency exchange and a trades as a security itself. Kraken sees various problems with this proposal:
Many digital currency exchange platforms are making an effort to act as asset custodians. This relationship means that traders can do as they please with their tokens or fiat currencies once the contract comes to an end, which can happen at the time a withdrawal takes place. Financial securities require a settlement transaction, thereby adding an unappealing layer of bureaucracy.
Since custodial services are more like bank accounts held for the benefit of individuals and business entities, they should not be treated as investment securities because their value is not defined by markets. In other words, Canadian dollars will always be fiat currency even if the global exchange markets pressure them to be more or less valuable than other foreign currencies.
What Kraken would like to see in Canada is a reasonable exclusion of digital currencies from securities laws, a scenario that some American lawmakers plan to support later this year.