• According to the OSC, Poloneix has never filed a prospect nor requested for an exception from the OSC.
• The crypto exchange is incorporated in the Republic of Seychelles but is offering its services to the residents of Ontario.
• The 19th of April 2021 was set as a deadline for all crypto entities operating in Ontario to contact the regulator to initiate compliance which Poloneix had failed to comply with.

The Canadian State regulatory authority published an official statement of allegations against Poloneix this Tuesday, according to which the crypto exchange has never been registered with the OSC. By encouraging Canadian citizens and Ontario residents to use its platform for crypto derivatives and securities trading despite its legal shortcomings, the platform has broken Canadian Securities Law.

“Poloneix has never filed a prospectus with the Commission or obtained an exemption from the prospectus requirement,” OSC said in its statement. The crypto exchange is incorporated in the Republic of Seychelles, and the Seychelles Financial Services Authority has been working in tandem with the OSC regulators in the matter.

What was the Compliance Requirement?

In March 2021, OSC had notified all Ontario-operating crypto exchange platforms regarding the need to comply with local security laws, failing which they would be subjected to potential regulatory action. The platforms were given a window until April 19, 2021, to contact the OSC for discussions on the compliance, and subsequent operations.

The statement by OSC on March 29 stated, “they must bring their operations into compliance with Ontario securities law, or face potential regulatory action.” According to the regulators, unregistered crypto-asset trading platforms expose Ontario investors to significant risks, including potential loss, theft, and misuse of their assets. The recent rise in unregistered platforms has magnified these risks.

“Despite this warning, Poloneix did not contact the Commission by April 19, 2021, or at any time to start compliance discussions,” the authority stated. “Entities such as Poloneix, which flout this compliance process, expose Ontario investors to unacceptable risks and create an uneven playing field within the crypto asset trading platform sector,” the latest report by the OSC states.

What next?

The OSC enforcement staff has requested that the securities commission should order Poloneix explicitly to halt trading in any crypto securities or derivatives permanently, or until the OSC is satisfied. Besides, Poloneix must be barred from “acquiring any securities permanently” or registering itself as an investment fund manager.

The statement goes on to say that Poloneix must pay an administrative penalty of not more than 1 million Canadian dollars for each failure to comply with the Ontario Securities Law. The order dated May 25, 2021, issued by the OSC’s Litigation Counsel Charlie Pettypiece, also notes that Poloneix must pay additionally for investigation costs.

To date, more than 70 platforms have initiated compliance discussions with the OSC, out of which nearly 1/4th are based outside of Canada. The commission is assessing the appropriate path to registration for these platforms, providing information on the next steps while resolving their queries. Only one crypto asset dealer has been registered so far.