Amidst The QuadrigaCX Drama Canadian Regulators Revamp Framework for Crypto Platforms
The drama and trauma surrounding continue as CEO’s widow, Jennifer Robertson issues a new statement, further complicating the matters. Taking their cue from the debacle, Canadian regulators introduce some changes into the regulations that crypto platforms have to follow.
The QuadrigaCX Debacle
QuadrigaCX CEO Gerald Cotten and Robertson visited India for their honeymoon. However, on November 30, 2018, just a week later, Cotten, who suffered from Crohn’s disease, reportedly died. The news of Cotten’s death was publicly revealed almost a month later on January 14, 2019. Which subsequently led to a series of scandals, legal drama, doubts, audits mysteries and allegations for the widow and the exchange.
As per the exchange, Cotten used to work on his laptop and was the only person with knowledge and access to Quadriga’s cryptocurrency. Following his death, roughly $145 million in cryptocurrencies is still missing.
The New Statement
On March 13th, Robertson issued a new statement announcing that law firm Stewart McKelvey, will no longer represent QuadrigaCX. She further confirms that the death of her husband was “sudden and unexpected”, addressing the conspiracy theories that suggest that Cotten is still alive and his death is a clever ploy to escape financial troubles.
Robertson stated that Cotten was employing his own personal funds in order to keep the exchange afloat. In addition, she insists that she has been doing her very best to recover the lost crypto, elaborating:
“I took direction and advice from its main contractors, and its then lawyer, utilized my own funds to keep it afloat, agreed to and paid for an experienced investigator to try and recover its assets, and then initiated the [Companies’ Creditors Arrangement Act] process which led to [Ernst & Young’s] appointment as Monitor.
Since the appointment of EY as Monitor, I have tried to be responsive, helpful and cooperative with the Monitor in the operation of the QCX business and the search for its cryptocurrency and other assets. As this matter progresses, my intention is to continue to support the process and to ensure a fair and equitable resolution is obtained.”
QuadrigaCX Troubled back-story
A report by Decrypt unraveled that the exchange has been facing financial troubles in part to funds that were frozen in 2018.
“In January 2018, the Canadian Imperial Bank of Commerce (CIBC) froze $30 million of funds belonging to QuadrigaCX because it couldn’t identify the owners of the funds. Customer complaints rained down on QuadrigaCX as people struggled to access their funds. This led to fewer people using the exchange and its daily trading volume dwindled to $600,000 by October 2018.”
Looking into the circumstances of QuadrigaCX and the disappearance of the millions in crypto assets owned by the exchange’s customers, Canadian officials have been prompted to create new regulations.
On Thursday, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) released a consultation paper. The paper proposes a new framework for regulating crypto activity, including:
- Custody and verification of assets
- Price determination
- Surveillance of trading activities
- Systems and business continuity planning
- Conflicts of interest
- Clearing and settlement
- Applicable regulatory requirements
As per the proposal,
“While the Proposed Platform Framework builds on an existing regulatory regime that was designed for a wide variety of market participants, we recognize that the existing regulatory requirements, and particularly the Marketplace Rules, were designed for marketplaces trading traditional securities (such as equities and debt). The CSA supports innovation in our capital markets while protecting investors and promoting fair and efficient capital markets. We are therefore considering a set of requirements tailored to Platforms’ operations that appropriately addresses the new risks introduced.”
“When looking at the operations of a Platform, we will assess whether a Platform’s risk management policies and procedures are appropriate to manage and mitigate the custodial risks. Expectations will be guided by the operational model of the Platform. For example, if the trades on a Platform do not occur on the distributed ledger, and instead the Platform keeps track of changes in ownership on its own internal ledger, we will evaluate whether the Platform has a robust system of internal controls, including records, that ensures that a participant’s crypto assets are accurately accounted for by the Platform and appropriately segregated from assets belonging to the Platform.”
At the start of this Month, the court granted QuadrigaCX a 45-day extension to find more than $100 million in lost Bitcoin, Ethereum, Bitcoin Cash, Bitcoin SV, and Bitcoin Gold. The extension essentially prevents people from suing the exchange while the investigation continues.