'QuadrigaCX case shows need for cryptocurrency regulation'

11 Mar, 2019
by Joeri Cant
Exchange
'QuadrigaCX case shows need for cryptocurrency regulation'

Lisa Kramer, a Professor of Finance at the University of Toronto, who conducts research on topics including behavioural finance and economics, human emotion, psychology, financial markets, and business ethics, says that the QuadrigaCX debacle, above all, shows the urgent need for cryptocurrency regulations.

According to GlobalNews, the finance Professor at the University of Toronto, points out that one bad decision about password custodianship can cause more than a 100,000 people to lose access to their deposits.

'The reason why this is even possible', she says, 'lies in the murky and mostly lacking regulations that govern the cryptocurrency world. Nothing stops entrepreneurs like the QuadrigaCX CEO Gerald Cotten from running companies like Quadriga with no independent oversight.'

'Because QuadrigaCX is an exchange it operates in a regulatory vacuum', Kramer adds.

Read more: The QuadrigaCX timeline: as it happened

Kramer suggests that one might argue that the Canadian Office of Superintendent of Financial Institutions, which oversees Canadian banks that take regular dollar deposits, ought to be adapted to include oversight of virtual exchanges like QuadrigaCX, even if cryptocurrency exchanges are not technically banks and their deposits are non-traditional in nature.

'That oversight would impose accounting standards and reporting requirements that would help prevent the sorts of irresponsible missteps that put Quadriga depositors in such a precarious position.'

She further points out that regulatory supervision would be beneficial to crypto investors in more than one way, as it could as well provide a certain level of protection against hackers and other cybercriminal activity that plagues the cryptocurrency world.

'In Canada, we regulate many industries that are risky or distasteful to some, including gambling, alcohol, tobacco and marijuana', Kramer says. 'The underlying calculus is that providing standards for certain illicit activities is preferable to driving those activities to the black market, where the risks would be amplified.'

Kramer states that she is not suggesting that these regulations should protect cryptocurrency speculators against losses that may arise from taking calculated risks.

'Rather', she says, 'I propose that depositors ought not to be penalized for the indiscretions of the custodians to whom they entrust their financial holdings.'

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

Mike Stephens, a partner at Fasken Martineau DuMoulin LLP in Vancouver, voiced a similar opinion in regards to the QuadrigaCX fiasco.

'There really isn't anything in Canadian laws that would regulate a company like QuadrigaCX', he said.

'In a perfect world, the securities regulators would be regulating crypto-exchanges, 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.

Stay with Chepicap as the QuadrigaCX saga continues to unfold.

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