The BCSC on Wednesday said it has granted block chain start-up First Block Capital Inc. registration as an investment fund manager and an exempt market dealer. This allows the company to operate in the province as a bitcoin investment fund.
Cryptocurrencies are digital assets that are used as a medium of exchange over the Internet in lieu of traditional currencies. The technology relies on cryptography to secure transactions and to control the creation of additional units of the currency. A blockchain, which is a digital public ledger, contains information on all cryptocurrency transactions.
Bitcoins became the first decentralized cryptocurrency in 2009, however, there are other kinds of cryptocurrencies. Using a peer-to-peer network and a distributed time stamping server, the blockchain prevents double-spending of bitcoins.
“Cryptocurrency investments are a new and novel form of investing in Canada. We have seen from the market and from investors that there is a strong appetite for access to these kinds of investments,” said Zach Masum, manager, legal services, capital markets regulation, and leader of the BCSC’s Tech Team. “This first registration allows access to bitcoin investments while providing the BCSC with unique mechanisms to monitor operations in a rapidly developing area.”
Digital transactions have exposed the limitation of traditional currencies and exchange systems. Among these limitations are high expenses, time delays, and security risks.
Many businesses, financial institutions, and individuals are exploring the benefits of cryptocurrencies because they provide anonymity to holders, protection from inflation, and security.
It is estimated that the current value of all the bitcoins in the world is around US$42 billion.
However, Cryptocurrency investments raise risks that are different from traditional asset classes, including the cybersecurity risks inherent in dealing with digital currencies, according to BCSC.
“These risks relate not only to the registrant but also to the bitcoin fund’s custodian, a third party chosen to facilitate the safekeeping and exchange of bitcoins,” the regulator warned. “The conditions of registration imposed on First Block Capital were crafted to give the flexibility to allow them to operate under the present regulatory framework, and give tools to the BCSC to evaluate the identified risks of this innovative fund type.”
The BCSC launched the Tech Team in January 2017 as part of its fintech outreach initiative to help B.C.-based fintech and technology companies understand their securities regulatory requirements. The Tech Team is also actively involved with the Canadian Securities Administrators’ Regulatory Sandbox Initiative, which supports fintech businesses seeking to offer innovative products, services, and applications in Canada
“We strongly encourage other companies in British Columbia, whether they are potential new registrants or existing investment fund managers, to contact the BCSC’s Tech Team if they are considering pursuing cryptocurrency investments in their funds,” said Masum. “The Tech Team can help ensure compliance with securities regulation, which can help save time and potential costs later on.”
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