OSC metes out penalties, market ban in pair of crypto trading cases

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The Ontario Securities Commission reeled in two successful enforcement cases in a crackdown on “non-complaint” crypto asset trading platforms: a settlement with Bybit Fintech Ltd., and a Capital Markets Tribunal ruling against KuCoin imposing a permanent market ban and “substantial” monetary sanctions.

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“Foreign crypto asset trading platforms that want to operate in Ontario must play by the rules or face enforcement action,” said Jeff Kehoe, director of enforcement at the OSC, Canada’s largest capital markets regulator. “The outcomes announced today should serve as a clear indication that we refuse to tolerate non-compliance with Ontario securities law.”

The OSC said both Bybit and KuCoin operated unregistered crypto asset trading platforms “and allowed Ontario investors to trade securities without a prospectus or any exemption from the prospectus requirements.” 

The regulator obtained orders permanently banning KuCoin from participating in Ontario’s capital markets and requiring it to pay a $2-million administrative penalty, plus $96,550.35 towards the costs of the OSC’s investigation.

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Bybit settled with the OSC, agreeing to disgorge US$2,468,910 and pay a further $10,000 towards the cost of the investigation.

“Unlike KuCoin, Bybit responded to the OSC’s enforcement action, maintained an open dialogue, provided requested information, and committed to engaging in registration discussions,” the regulator said. 

Bybit has also given an undertaking, or “legally enforceable commitment” to the OSC, to take steps to bring its operations into compliance. 

“In addition, while registration discussions are ongoing, Bybit confirms that it will not accept new accounts for Ontario residents, offer any new products to existing accounts held by Ontario investors, or engage in any marketing and promotional activities targeted at Ontario residents,” the OSC said. 

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“If registration discussions fail, Bybit confirms that it will wind up its Ontario operations.”

Existing Ontario retail investors will be required to wind down their positions in certain restricted products, such as contracts that involve leverage, margin, or the extension of credit. The OSC said any funds or assets remaining in Ontario retail investor accounts may be used for non-restricted products or withdrawn from the Bybit platform.

The OSC issued a warning in March of 2021 telling crypto asset trading platforms offering trading in derivatives or securities in Ontario to contact the regulator by the following month to begin registration discussions or face enforcement action.

“Despite this warning, Bybit and KuCoin did not contact the OSC by the deadline and continued operations in Ontario,” the OSC said Wednesday.

The OSC thanked the British Virgin Islands Financial Services Commission for their assistance in the Bybit case, and the Seychelles Financial Services Authority for their assistance in the KuCoin case.

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