'QuadrigaCX saga will kick-start regulatory oversight for crypto exchanges'

21 Feb, 2019 | Updated: 21 Feb, 2019
by Joeri Cant
'QuadrigaCX saga will kick-start regulatory oversight for crypto exchanges'

Chetan Phull, the founder of Smartblock Law PC, a cyber-tech law firm in Toronto, Canada, said that the QuadrigaCX debacle is going to be the case that will kick-start regulatory oversight for crypto exchanges.

According to the Canadian Lawyer, the founder of Smartblock Law PC, a cyber-tech law firm in Toronto with a focus on blockchain, data privacy, IT contracts and litigation, said that he thinks that QuadrigaCX will be the trigger that will push the Canadian Parliament to act and regulate crypto-exchanges more like banks.

'I think Quadriga CX is going to be the case that turns things in Canada and kick-starts regulation because this problem could very well happen again', he said.

Read more: British Columbia Securities Commission says it doesn't regulate QuadrigaCX

Several lawyers who are active in the area of blockchain technology, stated that the loss of about $190 million of investor money resulting from the death of the founder of the cryptocurrency exchange, Gerald Cotton, clearly indicates the regulatory gaps and necessity for better oversight.

'Historically', Phull said. 'The threat to cybersecurity in crypto-platforms has typically been a breach from an outside third party. What makes the case of Quadriga CX unique, is that the exact opposite is the problem.'

Phull, whose firm focuses on data privacy and cybersecurity added that he is hoping this case illustrates the importance of not just data security from the standpoint of breaches, but also data security from the standpoint of putting these impenetrable locks on data that can never be accessed again because of irresponsible conduct.

Read more: The QuadrigaCX timeline: as it happened

Mike Stephens, a partner at Fasken Martineau DuMoulin LLP in Vancouver, said that there really isn't anything in Canadian laws that would regulate a company like QuadrigaCX.

'Crypto-graphic instruments are not defined as securities, though some regulators in Canada infill the definition of securities to include them by applying the Pacific-Coin test', he said.

The Pacific Coast Coin test follows closely the 1946 U.S. Supreme Court case Securities and Exchange Commission v. W.J. Howey Co., which applies a nearly identical test.

'In a perfect world, the securities regulators would be regulating crypto-exchanges', said Stephens. 'But we need to have the regulation to kind of bring it under their jurisdiction, for sure. And then we don't have Quadrigas in the future.'

According to Stephens, Canadian authorities need to first undergo a process of education, evaluation and, ultimately, legislation, in order to mandate internal processes of crypto-businesses.

Read more: Man who lost $422K in QuadrigaCX disaster: 'I was angry and depressed'

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