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Financial Services Regulatory Authority of Ontario Proposes Guidance for Crypto Custodians and other Trust Corporations

On August 10, 2023, the Financial Services Regulatory Authority of Ontario (FSRA) issued proposed guidance on Regulatory responsibilities for trust corporations, including crypto custodians, operating in Ontario (the Guidance). Comments are due October 10, 2023.

According to FSRA’s news release, the Guidance is intended to, “clarif[y] when trust corporations, including crypto custodians, need to register with FRSA” and is, “designed to better protect Ontario consumers and help address ‘regulatory gaps’ with respect to trust corporations holding people’s crypto assets”.

FSRA defines a “Crypto Custodian” as a provider of services to “store the private keys that allow access to and transfers of crypto assets and provide security services and controls to prevent the loss of crypto assets, deter fraudulent activity, and protect consumers”. As a result of this broad definition, the Guidance will be of interest to many types of crypto asset service providers that have customers in Ontario, including custodians, crypto asset trading platforms (CTPs) and providers of private key management software.


FSRA has observed an increase in consumer interest and investments in crypto assets in recent years, and that, “governments, banks and regulators globally are looking at how to best address potential risks associated with crypto assets”. FSRA notes that, since loss of private keys is a principal risk of owning crypto assets, many rely on the services of a Crypto Custodian. The Guidance references the regulatory framework for CTPs established by the Canadian Securities Administrators (CSA), under which eleven CTPs have registered as securities dealers in Ontario and other Canadian jurisdictions since March 2021 (Dealer CTPs), and another eleven CTPs have undertaken to become registered by no later than March 2024. Dealer CTPs are subject to the securities regulatory requirement for client assets to be held with a “qualified custodian” as defined in Canadian securities law.

The definition of “qualified custodian” includes a trust company that is incorporated and licensed or registered under the laws of Canada or a jurisdiction of Canada, as well as a foreign entity that is incorporated under the laws of a country or political subdivision of a country other than Canada and regulated as a trust company by the government, or an agency of the government, of such foreign country or political subdivision. A key difference between the qualification criteria for Canadian and foreign trust companies is that the equity requirement is the equivalent of C$10 million for a Canadian custodian and C$100 million for a foreign custodian, in each case as reported on the custodian’s most recent audited balance sheet.

Under the CSA’s strengthened approach toward the regulation of Dealer CTPs announced in February 2023, the CSA imposed additional qualification criteria for Crypto Custodians, including: (i) a current Systems and Organization Controls (SOC) report or comparable report; (ii) audited financial statement reporting requirements, including reporting of client crypto asset liabilities and reserves on the balance sheet or in the notes); and (iii) for Foreign Crypto Custodians, CSA approval, which may be granted to a foreign custodian that does not meet the C$100 million equity requirement.

Most Canadian Dealer CTPs use the services of foreign Crypto Custodians to hold client assets since there is currently only one Crypto Custodian incorporated in Canada, specifically, Tetra Trust Company (Tetra), which is based in Calgary, Alberta and regulated by the Alberta Superintendent of Financial Institutions (ASFI) since July 2021. Tetra provides services to a small handful of Dealer CTPs and most Dealer CTPs are serviced by Crypto Custodians that are regulated as trust companies by U.S. state government agencies, including the New York State Department of Financial Services and the South Dakota Division of Banking (Foreign Crypto Custodians).

Trust corporation registration requirement

Pursuant to the Loan and Trust Corporations Act (Ontario) (LTCA), no person, other than a trust corporation registered with FSRA, may conduct, undertake or transact in Ontario the business of a trust corporation. In addition, no person, other than a trust corporation registered with FSRA and a person duly authorized by it to act on its behalf, may solicit the business of a trust corporation.

 A “trust corporation” is further defined as “a body corporate incorporated or operated, (a) for the purpose of offering its services to the public to act as trustee, bailee, agent, executor, administrator, receiver, liquidator, assignee, guardian of property or attorney under a power of attorney for property, and (b) for the purpose of receiving deposits from the public and of lending or investing such deposits.” A “deposit” is defined as “in relation to a registered corporation, money received by it that is repayable on demand or after notice or that is repayable upon the expiry of a fixed term.”

Only a federal trust company incorporated under the Trust and Loan Companies Act (Canada) and subject to oversight by the Office of the Superintendent of Financial Institutions (OSFI) may register with FSRA as a trust corporation. Neither foreign trust corporations nor trust corporations formed under the laws of another province (such as Alberta) may register with FSRA.

Notwithstanding the requirement under subsection (b) of the definition of “trust corporation” that a trust corporation be engaged in deposit-taking, and the overarching statement in the Guidance that “If a crypto custodian operates for the purpose of taking deposits of money from the public in Ontario, it is a trust corporation under the LTCA and would need to register under the LTCA”, certain examples outlined in the Guidance seem to focus on subsection (a) of the definition and do not seem to reference the deposit-taking requirement in subsection (b). 

For example, FSRA states that “[a] Crypto Custodian that offers services to the public, as a trustee or a bailee of its customers’ assets, or any other activity described in the definition of a “trust corporation" would be a “trust corporation” as defined in the LTCA” and that “[a]Crypto Custodian that safeguards private keys pursuant to a contract (without taking ownership of such keys) would be acting as a bailee under Ontario law and be required to register as a trust corporation with FSRA if it provides these services to the public in Ontario.” 

Offering services “to the public”

As noted above, only an entity that is offering trust services “to the public” would meet the definition of a “trust corporation” under the LCTA. The Guidance states that FSRA will take a purposive approach guided by case law in determining whether an entity is offering its services “to the public” and that it will consider the following factors:

  • “if there is a group of Ontarians to which the trust corporation offers its services;
  • the bonds of interest or association between that group of Ontarians; and
  • the degree of difficulty in becoming a member of the group of Ontarians to which the trust corporation offers its services (i.e., if the group is “inclusive” or “exclusive”).”

In particular, the Guidance states that “[o]ffering services only to large commercial clients or to a section, group, or portion of a community would constitute offering services “to the public”” (our emphasis) but that “[o]ne person is not “the public”.”

It appears that the case law referenced in the Guidance relates to whether an offering of securities was made by an issuer “to the public” in a province of Canada in contravention of applicable securities laws, and not to the offering of trust services “to the public” in contravention of applicable trust company legislation.

Specifically, four decisions of the Alberta Securities Commission (ASC)[1] considered the availability of the “family, friends and business associates” exemption from the prospectus requirement in the context of alleged illegal distributions of securities “to the public” in Alberta. In each case, the ASC rejected the defendant’s position that the prospectus exemption was available on the basis that purchasers of securities issued by the defendants did not have sufficient “bonds of interest or association” with the defendant to qualify as friends or business associates of the defendant. Notably, the ASC considered the bonds of interest or association between the securities issuer and each purchaser, and not among the group of purchasers.

The factor of “the degree of difficulty in becoming a member of [a] group” was considered in Regina v. McKillop [1972] O.R., in which the Ontario Provincial Court, Criminal Division, concluded that the accused’s sales of securities to approximately eleven individuals in Ontario over a 20 month period were, “not of a strictly private nature”, notwithstanding the relatively small number of purchasers. Notably, “the shares were not available only to those particular people to the exclusion of all others…they were not a favoured few, so to speak, in on a secret”. 

“Conducting, undertaking or transacting” the business of a trust corporation in Ontario

The Guidance provides further detail on when FSRA will consider a trust corporation to be doing business in Ontario. 

In particular, the Guidance states that “FSRA will consider the following factors in determining if a person or corporation is “conducting, undertaking or transacting” the business of a trust corporation, or any part or aspect of that business, in Ontario:

  • the business of a trust corporation is promoted through communications circulated, transmitted, broadcasted or otherwise accessible in Ontario
  • it received, in Ontario, a request for trust corporation services (e.g., asset protection) from a consumer, and it provided such services
  • it negotiated, from Ontario, the terms and conditions of a trust corporation’s services and/or entered into such contracts in Ontario
  • it communicated, from Ontario, an offer to provide a trust corporation’s services to a consumer, or accepted a request for these services from a consumer
  • it received, in Ontario, a consumer’s acceptance of the offer to provide trust corporation services
  • it received, in Ontario, payment for trust corporation services
  • it provided, in Ontario, trust corporation services to a consumer (e.g., information about its services or technical support was provided)
  • its name and/or business is listed in an Ontario business directory
  • it has assets in Ontario
  • it has an office in Ontario
  • it has a bank account in Ontario
  • it has agents or employees in Ontario”

The Guidance further elaborates on the above as follows:

  • No single factor determinative - “A single factor (e.g., being listed in an Ontario business directory) or an isolated transaction would generally not be sufficient” to be considered to be “conducting, undertaking or transacting” in Ontario.
  • Advertising - “Advertising in Ontario and a presence on the internet, when combined with other factors such as having employees in Ontario and engaging in solicitation would be enough” to be considered to be “conducting, undertaking or transacting” in Ontario.
  • Use of agents - A crypto custodian without any physical presence in Ontario that is not soliciting in Ontario but, through an agent, is entering into contracts under Ontario law and engaging in advertising in Ontario, targeted to Ontarians, would be considered to be “conducting, undertaking or transacting” in Ontario.
  • Ontario contracts - A “crypto custodian with offices in Ontario, employees in Ontario, a bank account in Ontario, which also engage in advertising, but no solicitation, in Ontario, that contracts in Ontario with contracts governed by Ontario law” would be considered to be “conducting, undertaking or transacting” in Ontario.

In setting out the above factors and views, the Guidance references a number of cases dealing with recognition of foreign judgments, namely Chevron Corp v Yaiguaje, 2015 SCC 42, HMB Holdings Ltd v Antigua & Barbuda, 2021 SCC 44 and Club Resorts Ltd. v. Van Breda [2012] 1 S.C.R. 572, [2012] S.C.J. No. 17, 2012 SCC 17.

The Guidance does not reference a line of cases beginning with Unifund Assurance Co. v. Insurance Corp. of British Columbia, [2003] 2 S.C.R. 63 (Unifund), which considers the constitutional issue of whether there is a “real and substantial connection” between a particular actor and a province sufficient to justify the application of a provincial regulatory scheme to the actor in the province. In College of Optometrists of Ontario v. Essilor Group Inc., 2019 ONCA 265 (CanLII), the Ontario Court of Appeal held that, “The required strength of [a] relationship varies with the type of jurisdiction asserted. A relationship that is inadequate to support the application of regulatory legislation nevertheless may provide a sufficient “real and substantial connection” to permit the course of the forum to take jurisdiction over a dispute”.

“Soliciting” in Ontario the business of a trust corporation

As noted above, no person, other than a trust corporation registered with FSRA and a person duly authorized by it to act on its behalf, may solicit the business of a trust corporation. The Guidance provides examples of what FSRA will consider as “solicitation”:

  • Solicitation:
    • if a request or invitation has been made, or if other conduct has taken place for the purpose of inciting someone to do something, characterized by some pressing request, commercial or otherwise, in nature
    • If a person (including an individual, corporation or partnership) sends unsolicited marketing or advertising materials by email, phone, text, social media, web applications or websites which meet the criteria above, and the materials relate to the business of a trust corporation, or any part or aspect of that business
  • Not solicitation:
    • The passive acceptance of business, or basic replies to requests from potential clients
    • A website that allows a consumer to purchase a service at the consumer’s own initiative, but does not solicit business from consumers
    • Mere acceptance of requests or demands for services by consumers through email, phone calls or other media, without prior or additional engagement with consumers

Next steps

FSRA encourages trust corporations doing business in Ontario to ensure they are properly registered (which would require such entities to be OSFI-regulated federal trust corporations) and states that it “may take enforcement action against unregistered corporations or persons for contraventions of the LTCA, for example, if a person conducts, undertakes or transacts in Ontario the business of a trust corporation (for example, if a corporation acts as a trustee or bailee in respect of any services it provides to the public) without being a trust corporation registered by FSRA”).

All Crypto Custodians that provide services to Dealer CTPs and/or other “large commercial clients” in Ontario should consider the potential impact of this Guidance on their businesses.

In addition, some crypto asset software service providers that provide technology which enables self-custody of crypto assets may possess back-up key material or key shards as part of their security services. Such service providers should consider whether their services are being offered to the public in Ontario in a manner that suggests that the service provider is acting as “trustee, bailee… [or] guardian” of private keys and may therefore, according to the Guidance, trigger the requirement to register as a trust corporation even without taking deposits.

Concerned crypto asset service providers should take the opportunity to provide comments to FSRA before the October 10 deadline.

For more information about our firm’s Fintech expertise, please see our Fintech group’s page.


[1]R v. Piepgrass, 1959 CanLII 310 (AB CA); 1205676 Alberta Ltd., Re, 2010 ABASC 237; Planned Legacies Inc., Re, 2011 ABASC 76 and Wealthstreet Inc., Re, 2011 ABASC 456 (collectively, the “ASC Decisions”).



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