On June 7, the Ontario Securities Commission began an enforcement action against crypto exchange Kucoin's parent companies, Mek Global and PhoenixFin, saying that Kucoin had been operating in Ontario in defiance of Canadian securities laws.
The OSC alleges that Kucoin had failed to contact the regulator by April 19, the cutoff point for custodial crypto exchanges operating in Canada to begin compliance conversations under the country's new approach, which requires them to register as securities exchanges or leave.
Per the OSC: "KuCoin has engaged in, or held itself out as engaging in, the business of trading in securities without the necessary registration or an applicable exemption from the registration requirement."
The action follows up on one against Poloniex that began late in May and similarly targets custodial crypto exchanges under securities laws. The statement of allegations in the Kucoin case outlines this logic once more:
"While KuCoin purports to facilitate trading of the crypto assets in its investors’ accounts, in practice, KuCoin only provides its investors with instruments or contracts involving crypto assets. These instruments or contracts constitute securities and derivatives."
The recent legal actions are the culmination of several years of establishing the logic of treating crypto exchanges as securities exchanges while considering several of the crypto assets themselves to be commodities. Canadian securities regulators, which operate at the provincial level, say that exchanges will either face upgraded levels of registration and regulation requirements or will need to cease operating in the country.