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Virtual Assets Derivatives: A Regulatory Framework

The Securities and Investment Business Act (SIBA) has introduced a new regulatory framework for virtual assets derivatives, which are contracts that secure profits or losses by referencing fluctuations in the value of property.

According to Schedule 1 of SIBA, virtual assets and related products are considered “long-term insurance contracts” if they involve rights under a contract that is designed to secure a profit or avoid a loss by reference to fluctuations in the value of property. This definition includes:

  • Contracts for differences
  • Options
  • Other derivative instruments

The regulatory framework also defines “rights and interests in investments” as rights to and interests in any investment falling within Schedule 1 of SIBA. This means that virtual assets that are deemed an investment under any other paragraph within Schedule 1 will fall within this definition.

Licensing Requirements for Virtual Asset Activities

Schedule 2 of SIBA sets out the activities that require a licence, including:

  • Dealing in investments
  • Arranging deals in investments
  • Managing investments
  • Providing investment advice
  • Operating an investment exchange

If a virtual asset product fits the definition of an investment, persons carrying on an investment business activity will require a licence. For example:

  • A person providing custodian services for virtual assets may be required to obtain a licence as they are deemed to be providing investment activities.
  • Operators of exchanges that list virtual assets and related products will also require a licence.

Money Services Business Licencing

The Financing and Money Services Act (FMSA) sets out the requirements for money services businesses, which include:

  • The transmission of money in any form

However, given the definitions outlined above, the transmission of virtual assets or virtual asset related products does not require a money services business licence.

International Insights

In a global context, regulatory uncertainty persists for crypto mining. Canada and the United States are relatively friendly to crypto mining. Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe.

Conclusion

The regulatory framework introduced by SIBA provides a clear definition of virtual assets derivatives and sets out the licensing requirements for activities related to these products. As the virtual asset market continues to evolve, it is essential that persons carrying on such activities understand their obligations under the law.

Contact Freeman Law for digital currencies, tax planning, and tax compliance: [phone number] or schedule a consultation now!