Crypto faces stricter custody rules as CIRO acts in Canada

Canada’s investment industry regulator has unveiled a risk‑based, tiered digital asset Custody Framework designed to strengthen how crypto assets are held to reduce losses from hacks, fraud, and weak governance. According to the Canadian Investment Regulatory Organization (CIRO), the framework focuses on custody as a central point of investor vulnerability and aligns oversight intensity with a platform’s risk profile.

The framework sits alongside broader requirements for registration and disclosure, aiming to make custody arrangements more transparent and auditable. It is intended to address operational failures that contributed to past exchange collapses and to clarify supervisory expectations for platforms serving Canadian clients.

Why it matters after the QuadrigaCX fraud

QuadrigaCX’s 2019 failure remains the catalyst for tightening Canada’s crypto safeguards, with regulators emphasizing organizational lapses over purely technical flaws. Testimony to Parliament has described Canada’s regime as evolving directly from that episode and comparatively advanced.

The enforcement record underscores the stakes. “While public release of an investigative report is rare, we believe the tens of thousands of Ontarians who entrusted Quadriga with their money and crypto assets deserve to know what happened,” said Jeff Kehoe, Director of Enforcement, Ontario Securities Commission.

Platforms operating in canada should expect closer scrutiny of who controls client keys, how assets are separated from firm property, and whether custodial workflows can withstand governance failures. Registration and disclosure obligations are expected to be used to surface custody risks and to enable risk‑proportionate supervision.

For investors, the near‑term effect is clearer accountability over asset handling and a higher bar for exchanges that list products deemed securities or derivatives. Unregistered firms that access Canadian users face heightened enforcement exposure, particularly where custody and disclosure controls are deficient.

At the time of this writing, Bitcoin is around 76,503 with bearish sentiment, 5.71% volatility, and an RSI of 26.52 indicating oversold conditions; figures serve as context, not forward guidance.

Compliance timeline, registration, and who is affected

Platforms operating in Canada that trade securities or derivatives

Firms offering crypto products that meet securities or derivatives tests fall under securities law and must comply with registration and disclosure. The custody framework is intended to apply proportionally based on assessed risk.

Registration, disclosure, and risk‑based oversight milestones

Near‑term milestones center on registration filings, enhanced custody disclosures, and supervisory reviews that scale with platform complexity. Specific timing and phased expectations depend on regulators’ implementation and the content of platform undertakings.

FAQ about CIRO Digital Asset Custody Framework

Which crypto platforms must comply with the new Canadian custody rules and when do they take effect?

Platforms dealing in securities or derivatives for Canadians are in scope. Implementation follows registration and disclosure steps, with risk‑based expectations applied as oversight ramps.

How will client assets be protected under the rules (segregation, third‑party custodians, cold storage, insurance, audits)?

The framework targets custody risks from hacks, fraud, and governance failures. Controls are applied proportionally; specific mechanisms are addressed through registration and disclosure reviews.

What are the consequences for unregistered platforms trading securities or derivatives in Canada under OSC oversight?

Regulators have warned that failing to register and disclose exposes clients to losses and misuse risks. Enforcement actions can follow where platforms serve Canadians without compliance.

How do Canada’s crypto custody requirements compare with the U.S. and EU approaches?

Parliamentary testimony indicates Canada moved quickly after QuadrigaCX and is relatively advanced. The approach emphasizes operational oversight and risk‑tiered supervision rather than one‑size‑fits‑all mandates.