counselservice

HeadnoteCSARegulatorySandbox–Applicationfortime-limitedrelieffromcertainregistrantobligations,prospectusrequirementandtradereportingrequirements–suitabilityrelieftoallowtheFilertodistributeCryptoContractsRightsandoperateaplatformthatfacilitatesthebuying,sellingandholdingofcryptoassets–reliefgrantedsubjecttocertainconditionssetoutinthedecision,includinginvestmentlimits,accountappropriatenessandreportingrequirements–reliefistime-limitedtoallowtheFilertooperateinatestenvironmentandwillexpireupontheearlieroftwenty-four(24)monthsorthedatethefilertransitionstheplatformtoitsIIROCaffiliate–reliefgrantedbasedontheparticularfactsandcircumstancesoftheapplicationwiththeobjectiveoffosteringcapitalraisingbyinnovativebusinessesinCanadaandliquidityforinvestors–decisionshouldnotbeviewedasprecedentforotherfilersinthejurisdictionsofCanada.
ApplicableLegislativeProvisionsSecuritiesAct,R.
S.
O.
1990,c.
S.
5,asamended,s.
1(1),53&74MultilateralInstrument11-102PassportSystem,s.
4.
7NationalInstrument21-101MarketplaceOperation,s.
1.
1NationalInstrument31-103RegistrationRequirements,ExemptionsandOngoingRegistrantObligations,s.
12.
1,13.
3OSCRule91-506Derivatives:ProductDetermination,s.
2&4OSCRule91-507TradeRepositoriesandDerivativesDataReporting,Part3August7,2020IntheMatteroftheSecuritiesLegislationofOntario(theJurisdiction)andAlberta,BritishColumbia,Manitoba,NewBrunswick,NewfoundlandandLabrador,NorthwestTerritories,NovaScotia,Nunavut,PrinceEdwardIsland,Saskatchewan,andYukonandIntheMatteroftheProcessforExemptiveReliefApplicationsinMultipleJurisdictionsandIntheMatterofWealthsimpleDigitalAssetsInc.
(theFiler)DecisionBackgroundAssetoutinCSAStaffNotice21-327GuidanceontheApplicationofSecuritiesLegislationtoEntitiesFacilitatingtheTradingofCryptoAssets(CSASN21-327),securitiesand/orderivativeslegislationmayapplytoplatformsthatfacilitatethebuyingandsellingofcryptoassets,includingcryptoassetsthatarecommodities,becausetheuser'scontractualrighttothecryptoassetmayitselfconstituteasecurityand/oraderivative(CryptoRightsContract).
Tofosterinnovationandrespondtonovelcircumstances,theCSAhasconsideredaninterim,time-limitedregistrationframeworkthatwouldallowcryptoassetplatformstooperatewithinaregulatedenvironment,withregulatoryrequirementstailoredtothecryptoassetplatform'soperations.
TheoverallgoaloftheregulatoryframeworkistoensurethereisabalancebetweentheneedtobeflexibleandfacilitateinnovationintheCanadiancapitalmarkets,whileupholdingtheregulatorymandateofpromotinginvestorprotectionandfairandefficientcapitalmarkets.
TheFilerhasmadeanapplicationtotheCSARegulatorySandbox,aninitiativeoftheCSAtosupportfintechbusinessesseekingtoofferinnovativeproducts,servicesandapplicationsinCanada.
Itallowsfirmstotesttheirproducts,servicesandapplicationsthroughouttheCanadianmarketunderaflexibleprocessandonatime-limitedbasis.
TheFilerwishestooperate,onaninterimbasis,aplatformthatpermitsclientsresidentinCanadatoenterintoCryptoRightsContractstopurchase,holdandsellBitcoinandEther(together,theCryptoAssets)throughtheFiler.
TheFilerwishestoultimatelycarryonthisactivitythroughitsaffiliatedentity,whichisregisteredasaninvestmentdealerandamemberoftheInvestmentIndustryRegulatoryOrganizationofCanada(IIROC).
WhiletheFilerisengagedindiscussionswithIIROConaregulatoryapproachforitsaffiliatedentitytocarryonthisactivity,theFiler-2-wishestocommenceoperationsandconductbetatesting.
InthecontextoftheCSARegulatorySandbox,theFilerfiledanapplicationtoberegisteredinthecategoryofrestricteddealerandanapplicationtobeexemptedfromcertainrequirementsunderapplicablesecuritieslegislation.
ThisDecisionhasbeentailoredforthespecificfactsandcircumstancesoftheFiler,andthesecuritiesregulatoryauthorityorregulatorintheApplicableJurisdictions(asdefinedbelow)orinanyotherjurisdictionwillnotconsiderthisDecisionasconstitutingaprecedentforotherfilers,whetherintheApplicableJurisdictionsorinanyotherjurisdiction.
ReliefRequestedThesecuritiesregulatoryauthorityorregulatorintheJurisdictionhasreceivedanapplicationfromtheFiler(thePassportApplication)foradecisionunderthesecuritieslegislationoftheJurisdiction(theLegislation)exemptingtheFilerfrom:a)theprospectusrequirementsundertheLegislationinrespectoftheFilerenteringintoCryptoRightsContractswithclientstopurchase,holdandsellCryptoAssets(theProspectusRelief);andb)therequirementinsubsection12.
10(2)ofNationalInstrument31-103RegistrationRequirements,ExemptionsandOngoingRegistrantObligations(NI31-103)todeliverannualauditedfinancialstatementstotheregulatorandtherequirementinsection13.
3ofNI31-103totakereasonablestepstoensurethat,beforeitmakesarecommendationtooracceptsinstructionsfromaclienttobuyorsellasecurity,thepurchaseorsaleissuitablefortheclient(collectively,theRegistrantObligationsRelief).
ThesecuritiesregulatoryauthorityorregulatorintheJurisdictionandeachoftheotherjurisdictionsreferredtoinAppendixA(theCoordinatedReviewDecisionMakers)havereceivedanapplicationfromtheFiler(collectivelywiththePassportApplication,theApplication)foradecisionunderthesecuritieslegislationofthosejurisdictionsexemptingtheFilerfromcertainreportingrequirementsundertheLocalTradeReportingRules(asdefinedinAppendixA)(theTradeReportingRelief,andtogetherwiththeProspectusReliefandRegistrantObligationsRelief,theRequestedRelief).
UndertheProcessforExemptiveReliefApplicationsinMultipleJurisdictions(forahybridapplication):a)theOntarioSecuritiesCommissionistheprincipalregulatorforthisApplication(thePrincipalRegulator),b)inrespectoftheProspectusReliefandRegistrantObligationsRelief,theFilerhasprovidednoticethat,inthejurisdictionswhererequired,subsection4.
7(1)ofMultilateralInstrument11-102PassportSystem(MI11-102)isintendedtoberelieduponineachoftheotherprovincesandterritoriesofCanadaexceptQuébec(theNon-PrincipalJurisdictions,and,togetherwiththeJurisdiction,theApplicableJurisdictions),and-3-c)thedecisioninrespectoftheTradeReportingReliefisthedecisionofthePrincipalRegulatorandevidencesthedecisionofeachCoordinatedReviewDecisionMaker.
InterpretationTermsdefinedinNationalInstrument14-101DefinitionsandMI11-102havethesamemeaningifusedinthisDecision,unlessotherwisedefined.
RepresentationsThisdecision(theDecision)isbasedonthefollowingfactsrepresentedbytheFiler:TheFiler1.
TheFilerisacorporationincorporatedunderthefederallawsofCanadawithitsprincipalofficeinToronto,Ontario.
2.
TheFilerisawhollyownedsubsidiaryofWealthsimpleFinancialCorp.
(WFC),aholdingcompanythatowns100%oftheissuedandoutstandingsecuritiesofseveraloperatingcompaniesthatareregisteredunderapplicablesecuritieslegislationineachoftheprovincesandterritoriesofCanada,includingWealthsimpleInc.
,aregisteredadviserinthecategoryofportfoliomanager,andCanadianShareOwnerInvestmentsInc.
(ShareOwner),aregistereddealerinthecategoryofinvestmentdealerandmemberofIIROC.
3.
TheFilerdoesnothaveanysecuritieslistedorquotedonanexchangeormarketplaceinanyjurisdictioninsideoroutsideofCanada.
However,amajorityofthevotingandnon-votingsecuritiesofWFCarecontrolledbysubsidiariesandentitiesaffiliatedwithPowerCorporation.
PowerCorporationisareportingissuerunderthelegislationoftheApplicableJurisdictionsanditssecuritiesarelistedfortradingontheTorontoStockExchange.
4.
Concurrentwiththisapplication,theFilerisseekingregistrationasadealerinthecategoryofrestricteddealerwiththeApplicableJurisdictions,exceptinQuébecwhereitisseekingregistrationasaderivativesdealerandinaseparatedecision,exemptionsfromcertainrequirementsapplicabletoaderivativesdealeraswellasthequalificationrequirementundertheDerivativesAct(Québec).
5.
TheFiler'sbooksandrecords,financialcontrolsandcompliancesystems(includingitspoliciesandprocedures)aredesignedtocloselyresembleinallmaterialrespects,exceptasnecessarytoaddressoperationaldifferences,thoseinplacetodayatShareOwner.
Theultimatedesignatedperson(UDP)andchiefcomplianceofficer(CCO)oftheFilerarethesameindividualswhoarealsotheUDPandCCOofShareOwner.
6.
TheFiler'spersonnelconsists,andwillconsist,ofsoftwareengineers,complianceprofessionalsandfinanceprofessionalswhoeachhavedeepexperienceoperatinginaregulatedfinancialservicesenvironmentandexpertiseinblockchaintechnology.
Allofthe-4-Filer'spersonnelhavepassed,andnewpersonnelwillhavepassed,criminalrecordsandcreditchecks.
TheFilerwillnothaveanydealingrepresentativesatthetimeofregistration.
7.
NeithertheFilernorShareOwnerisindefaultofsecuritieslegislationofanyoftheApplicableJurisdictions.
WealthsimpleCrypto8.
TheFilerwilloperateunderthebusinessnameof"WealthsimpleCrypto".
TheFilerhasbeenestablishedtooperate,onaninterimbasis,aproprietaryandfullyautomatedinternet-basedplatform(thePlatform)thatwillenableclientstoenterintoCryptoRightsContractswiththeFilertobuy,sellandholdtheCryptoAssetsthroughtheFiler.
9.
TheFiler'sroleunderCryptoRightsContractsistobuyorsellCryptoAssetsandtomanagethecustodyofallpurchasedCryptoAssetswiththirdparties.
10.
TheFiler'stradingofCryptoRightsContractsisconsistentwithactivitiesdescribedinCSASN21-327andconstitutesthetradingofsecuritiesand/orderivatives.
11.
TheFilerandShareOwnerwouldlikethePlatformtobeoperatedbyShareOwner.
TheFilerandShareOwnerhavebegundiscussionswithIIROConaregulatoryapproachtotransitionthePlatformtoShareOwnerinthefuture.
TheFilerandShareOwnerwillworkactivelyanddiligentlywithIIROCtotransitiontheoperationofthePlatformfromtheFilertoShareOwner.
12.
TheFilerwishestocommenceoperationsbyinitiallybetatestingthePlatform.
Betatestingwillinvolveinvitingindividuals,whohavesigneduptojointheWealthsimpleCryptowaitlist,toopenaccountsandbeginusingthePlatform.
TheFilerwillgraduallyinvitemoreindividualstousethePlatformsolongastheFilercontinuestoachieveinternaloperationalmetrics.
TheFilerwillsolicitfeedbackfromearlyuserstoimprovethePlatformandtransitionfrombetatestingtonormaloperation.
13.
TheFilerwillnotholdanyproprietarypositionsinCryptoAssetsforitself;itwillnottakealongorshortpositioninaCryptoAssetwithanyparty,includingclients.
14.
TheFilerdoesnothaveanyauthoritytoactonadiscretionarybasisonbehalfofclientsandwillnotmanageanydiscretionaryaccounts.
15.
TheFilerwillnotbeamemberfirmoftheCanadianInvestorProtectionFund(CIPF)andtheCryptoAssetscustodiedwiththirdpartieswillnotqualifyforCIPFcoverage.
TheRiskStatement(definedbelow)willincludedisclosurethattherewillbenoCIPFcoveragefortheCryptoAssetsandclientsmustacknowledgethattheyhavereceived,readandunderstoodtheRiskStatementbeforeopeninganaccountwiththeFiler.
16.
ThepreparationofauditedfinancialstatementsforaregistereddealerinCanadathattradesCryptoRightsContractsandholdsCryptoAssetsintrustatathird-partycustodianisnovel.
-5-Inconsultationwithitsexternalauditorsandexternallegalcounsel,theFilerhasworkeddiligently,forasustainedperiodoftime,toestablishasuitableframeworkforpreparingauditedfinancialstatements.
TheFileranticipatesthatitwillbeabletoobtainauditedfinancialstatementsfortheFiler's2021financialyearend.
17.
Duringtheperiodofthisrelief:a)theFilerwillworkcloselywithitsauditorstobeabletofileannualauditedfinancialstatementsinaccordancewithsubsection12.
10(2)ofNI31-103,andb)thefinancialstatementsoftheFilerwillbeconsolidatedwiththeannualauditedfinancialstatementsofitsparent,WFC,anduntilsuchtimeastheFilercandeliverannualauditedfinancialstatements,theFilerwillfilebothannualunauditedfinancialstatementsandtheannualauditedfinancialstatementsofWFCwiththePrincipalRegulator.
AccountOpening18.
ThePlatformwillbeavailabletoanyindividualwhoisresidentinCanada,whohasreachedtheageofmajority,andwhohasthelegalcapacitytoopenasecuritiesbrokerageaccount.
19.
ClientsoftheFilerwillopenaWealthsimpleCryptoaccountusingtheWealthsimpleTrademobileapp(theApp),whichisownedbyWealthsimpleTechnologiesInc.
,awholly-ownedsubsidiaryofWFC.
ClientswillusetheirWealthsimpleCryptoaccountstotradeinCryptoRightsContracts.
20.
ClientswillalsousetheApptoopenaccountswithShareOwner.
Clients'cashwillbeheldintheseaccountswithShareOwner.
ShareOwnerwillnottakeordersfromclientstobuyorsellCryptoAssets.
ShareOwner'srolewillbelimitedtoprocessingdebitsandcreditsintoandoutofaclient'scashbrokerageaccount,basedoninstructionsreceivedfromaclientorfromtheFileractingwiththeclient'sauthorization.
Clients'cashwillonlybesentfromtheiraccountwithShareOwnertotheFilerandfromtheFilertotheiraccountwithShareOwner,unlesstheclientwishestowithdrawtheircashfromShareOwner.
21.
TheFilerwillcomplywiththeapplicable"knowyourclient"accountopeningrequirementsunderapplicablelegislationandtheProceedsofCrime(MoneyLaundering)andTerroristFinancingActanditsregulations.
22.
Aspartoftheaccountopeningprocess,theFilerwillprovideaprospectiveclientwithaseparatestatementofrisksthatclearlyexplains,inplainlanguage,theCryptoRightsContractsandCryptoAssetsandtherisksassociatedwiththeCryptoRightsContractsandCryptoAssets,includingthedisclosureinAppendixBofthisdecision(theRiskStatement).
23.
Inaccordancewithsection14.
2ofNI31-103,theFilerwillalsodelivertoaprospectiveclientrelationshipdisclosureinformationthatincludesadescriptionoftheCryptoRights-6-Contracts,thelocationandmannerinwhichCryptoAssetsareheldfortheclient,therisksandbenefitstotheclientoftheCryptoAssetsbeingheldatthatlocationandinthatmanner,themannerinwhichtheCryptoAssetsareaccessiblebytheFiler,andtherisksandbenefitstotheclientarisingfromtheFilerhavingaccesstotheCryptoAssetsinthatmanner.
24.
InorderforaprospectiveclienttoopenandoperateaWealthsimpleCryptoaccount:a)theFilerwillobtainanelectronicacknowledgementfromtheprospectiveclientconfirmingthattheprospectiveclienthasreceived,readandunderstoodtheRiskStatement.
Suchacknowledgementwillbeprominentandseparatefromotheracknowledgementsprovidedbytheprospectiveclientaspartoftheaccountopeningprocess;andb)theFilerwilldetermine,priortoopeningtheaccount,whetheritwouldbeappropriatefortheprospectiveclienttousethePlatformtoenterintoaCryptoRightsContractinordertobuyandsellCryptoAssets.
25.
TheFilerwillhavepoliciesandproceduresforupdatingtheRiskStatementtoreflectanymaterialchangestothedisclosureorincludeanymaterialrisksthatmaydevelopwithrespecttotheCryptoRightsContractsandCryptoAssets.
IntheeventtheRiskStatementisupdated,existingclientsoftheFilerwillbepromptlynotifiedandprovidedwithacopyoftheupdatedRiskStatement.
26.
TheFilerwillalsoprepareandmakeavailabletoitsclients,onanongoingbasisandinresponsetoemergingissuesinCryptoAssets,educationalmaterialsandotherinformationalupdatesabouttradingonthePlatformandtheongoingdevelopmentofCryptoAssetsandCryptoAssettradingmarkets.
Todoso,theFilerwillbuildupontheexistingcommunicationchannelsandtechniquesusedbyaffiliatesintheWFCgroupofcompanies.
PlatformOperations27.
AllCryptoRightsContractsenteredintobyclientstobuyandsellCryptoAssetswillbeplacedwiththeFilerthroughtheApp.
Clientswillbeabletosubmitmarketbuyandsellorders,eitherinunitsoftheapplicableCryptoAsset(i.
e.
,BTCorETH)orinCanadiandollars,24hoursaday,7daysaweek.
28.
ThePlatformissimilartothosedevelopedfororderexecutiononlyonlinebrokeragesinthattheclienttradeswithoutothercommunicationwith,oradvicefrom,thedealeroritspersonnel.
Inthisregard,theFilerwillnotproviderecommendationsoradvicetoclientsorconductatrade-by-tradesuitabilitydeterminationforclients,butwillratherperformaccountandproductassessments,takingintoaccounttheinvestor'sexperienceininvestinginCryptoAssets,theinvestor'sexperienceinusingorderexecutiononlyonlinebrokerages,andtheinvestor'srisktolerance.
ThesefactorswillbeusedbytheFilertoevaluatewhetherenteringintoaCryptoRightsContractwiththeFilerisappropriateforaprospectiveclientbeforetheopeningofanaccount.
Aftercompletionoftheassessments,aprospectiveclient-7-willreceiveappropriatemessagingaboutusingthePlatformtoenterintoaCryptoRightsContract,whichcouldincludemessagingtoaprospectiveclientthatWDAbelievesthatusingthePlatformtoenterintoaCryptoRightsContractisnotappropriateforthem.
29.
Overtime,theFilerintendstocontinuetodevelopthePlatform,inpartbasedonuserfeedbackfrombetatesting.
30.
TheFilerwillrelyuponmultiplecryptoassettradingfirms(LiquidityProviders)toactassellersofCryptoAssetsthatmaybepurchasedbytheFilerforitsclients.
LiquidityProviderswillalsobuyanyCryptoAssetsfromtheFilerthataclienthaspurchasedusingthePlatformandwishestosell.
31.
TheFilerwillevaluatethepriceobtainedfromitsLiquidityProvidersonanongoingbasisagainstglobalbenchmarkstoprovidefairandreasonablepricingtoitsclients.
32.
TheFilerhasverifiedorwillverifythateachLiquidityProviderisappropriatelyregisteredand/orlicensedtotradeintheCryptoAssetsintheirhomejurisdiction,orthattheiractivitiesdonotrequireregistrationintheirhomejurisdiction,andthattheyarenotindefaultofsecuritieslegislationintheApplicableJurisdictions.
33.
TheFilerhasverifiedthateachLiquidityProviderhaseffectivepoliciesandprocedurestoaddressconcernsrelatingtofairprice,fraudandmarketmanipulation.
34.
ACryptoRightsContractisabilateralcontractbetweenaclientandtheFiler.
Accordingly,theFilerwillbethecounterpartytoeachbuyorselltransactioninitiatedbyaclient.
Foreachclienttransaction,theFilerwillalsobeacounterpartytoacorrespondingCryptoAssetsbuyorselltransactionwithaLiquidityProvider.
TheFilerwilltradeasarisklessprincipal,inthattheFilerwillnottakeanyproprietarypositionswhentradingwithclientsorwithaLiquidityProvider.
35.
Aftertheorderhasbeenplacedbyaclient,thePlatformwillobtainapricefortheCryptoAssetfromaLiquidityProvider,afterwhichthePlatformwillincorporatea'spread'tocompensatetheFiler,andwillpresentthisadjustedpricetotheclientasthepriceatwhichtheFileriswillingtotransactagainsttheclient.
36.
Iftheclientfindsthepriceagreeable,theclientwillacceptthepriceandagreetothetrade.
37.
InabuytransactionunderaCryptoRightsContract,thiswillresultintheclientinstructingWDAtorequestcashfromtheclient'saccountwithShareOwnerinordertofundthepurchase.
InaselltransactionunderaCryptoRightsContract,cashproceedswillbetransferredbyWDAtotheclient'saccountwithShareOwner.
38.
TheFilerwillnotextendmarginorotherwiseofferleveragetoclients.
39.
TheFilerwillconfirmthetransactionwiththeLiquidityProviders.
-8-40.
TheFilerwillrecordinitsbooksandrecordstheparticularsofeachtrade.
41.
TheFilerwillpromptly,andnolaterthantwodaysafterthetrade,settletransactionswiththeLiquidityProvidersonanetbasis.
WheretherearenetpurchasesofCryptoAssets,theFilerwillarrangeforthecashtobetransferredtotheLiquidityProviderandCryptoAssetstobesentbytheLiquidityProvidertotheFiler'scustodian.
WheretherearenetsalesofCryptoAssets,theFilerwillarrangeforCryptoAssetstobesentfromtheFiler'scustodiantotheLiquidityProviderinexchangeforcashreceivedbytheFilerfromtheLiquidityProviders.
42.
ClientswillreceiveelectronictradeconfirmationsandmonthlystatementssettingoutthedetailsofthetransactionhistoryintheiraccountwiththeFiler.
43.
ThePlatformisa"closedloop"system.
ClientswillnotbepermittedtotransferintotheiraccountwiththeFileranyCryptoAssetstheypurchasedoutsidetheplatformorwithdrawfromtheiraccountwiththeFileranyCryptoAssetstheyhavepurchasedpursuanttotheirCryptoRightsContractswiththeFiler.
AnyCryptoAssetsthatmaybepurchasedunderaCryptoRightsContractwillbeheldbytheFilerintrustfortheclientandbydefaultmustbesoldinatradewiththeFiler.
Notwithstandingtheforegoing,theFilermay,incertainlimitedcircumstancesandforafee,deliverpossessionand/orcontroloftheCryptoAssetspurchasedunderaCryptoRightsContracttoanotherCryptoAssettradingplatformorapersonalcryptoassetwalletatthedirectionoftheclient,subjecttosatisfyingallapplicablelegalandregulatoryrequirements,includinganti-moneylaunderingrequirements.
44.
TheFilerbelievesaclosedloopsystemwillsignificantlyreducethelikelihoodoffraud,moneylaunderingorclienterrorinsendingorreceivingCryptoAssetstoincorrectwalletaddresses.
However,aclosedloopsystemmayalsoexposetheclienttoinsolvencyrisk(creditrisk),fraudriskorproficiencyriskonthepartoftheFiler.
45.
TheFilerwillbecompensatedbythespreadontrades.
Itdoesnotcurrentlychargeanyaccountopeningormaintenancefees,commissions,orotherchargesofanykind.
46.
Inadditiontotheclientriskdisclosureandongoingeducationinitiativesdescribedinparagraphs22-26above,andtheaccountandproductappropriatenessexercisedescribedinparagraph28above,theFilerwillalsomonitorclientactivity,andcontactclientstodiscusstheirtradingbehaviourifitindicatesalackofknowledgeorunderstandingofCryptoAssettrading,inanefforttoidentifyanddeterbehavioursthatmayindicatethattradingaCryptoRightsContractisnotappropriatefortheclient,orthatadditionaleducationisrequired.
Theoutcomeofthisengagementwithaclientmayresult,insomecases,inadecisionbytheFilertocloseaclient'saccount.
CustodyofCryptoAssetsandCash47.
TheFilerwillnotmaintainitsownhotorcoldwalletstoholdCryptoAssets.
Instead,GeminiTrustCompany,LLC(Gemini),athird-partycustodian,willactascustodianoftheCryptoAssetspurchasedbyclientsthroughtheFiler.
Geminiisalicenseddigitalasset-9-exchangeandaNewYorktrustcompanyregulatedbytheNewYorkStateDepartmentofFinancialServices.
Geminiisa"qualifiedcustodian"forpurposesofNI31-103andhascompletedaSOC2Type2examination.
TheFilerhasconductedduediligenceonGemini,includingareviewoftheSOC2Type2examinationreport,andhasnotidentifiedanymaterialconcerns.
48.
GeminiwilloperateacustodyaccountfortheFilertouseforthepurposeofholdingclients'CryptoAssets.
TheFilerisnotpermittedtopledge,re-hypothecateorotherwiseuseanyCryptoAssetsownedbyitsclientsinthecourseofitsbusiness.
49.
GeminiwillholdallCryptoAssetsintrustforclientsoftheFilerinanomnibusaccountinthenameoftheFilerandseparateanddistinctfromtheassetsoftheFiler,theFiler'saffiliates,andallofGemini'sotherclients.
50.
Geminihasestablishedandappliespoliciesandproceduresthatmanageandmitigatethecustodialrisks,including,butnotlimitedto,aneffectivesystemofcontrolsandsupervisiontosafeguardtheCryptoAssetsforwhichitactsascustodian.
51.
TheFilerhasassessedtherisksandbenefitsofusingGeminiand,hasdeterminedthatincomparisontoaCanadiancustodian(asthattermisdefinedinNI31-103)itismorebeneficialtouseGemini,aU.
S.
custodian,toholdclientassetsthanusingaCanadiancustodian.
52.
AclientcanmaintaintheirCryptoRightsContractwiththeFilerindefinitely.
53.
NeithertheFilernorGeminiwillholdclientcash.
Assetoutinparagraph20above,eachclientoftheFilerwillopenanon-registeredcashbrokerageaccountwithShareOwnerforthesolepurposeofholdingcashthataclientmayusetoengageintransactionsonthePlatform.
54.
Geminicurrentlymaintains$200millioninspeciecoveragefordigitalassets,includingtheCryptoAssetsownedbyclientsoftheFiler,heldinGemini'scoldstoragesystem.
Geminialsomaintainsseparatecommercialcrimeinsurancecoverageforanydigitalassetsthatmaybetemporarilycustodiedinits"hotwallet",includingtheCryptoAssetsownedbyclientsoftheFiler.
MarketplaceandClearingAgency55.
TheFilerwillnotoperatea"marketplace"asthattermisdefinedinNationalInstrument21-101MarketplaceOperationandinOntario,subsection1(1)oftheSecuritiesAct(Ontario)(theAct).
56.
TheFilerwillnotoperatea"clearingagency"asdefinedinsecuritieslegislation.
AnyclearingorsettlementactivityconductedbytheFilerisincidentaltotheFilerengaginginthebusinessofaCryptoAssetdealer.
AnyactivitiesoftheFilerthatmaybeconsideredtheactivitiesofaclearingagencyarerelatedtotheFilerarrangingorprovidingfor-10-settlementofobligationsresultingfromagreementsenteredintoonabilateralbasisandwithoutacentralcounterparty.
DecisionThePrincipalRegulatorissatisfiedthattheDecisionsatisfiesthetestsetoutintheLegislationforthePrincipalRegulatortomaketheDecisionandeachCoordinatedReviewDecisionMakerissatisfiedthattheDecisioninrespectoftheTradeReportingReliefsatisfiesthetestsetoutinthesecuritieslegislationofitsjurisdictionfortheCoordinatedReviewDecisionMakertomaketheDecisioninrespectoftheTradeReportingRelief.
TheDecisionofthePrincipalRegulatorundertheLegislationisthattheRequestedReliefisgranted,andtheDecisionofeachCoordinatedReviewDecisionMakerunderthesecuritieslegislationinitsjurisdictionisthattheTradeReportingReliefisgranted,providedthat:I.
UnlessotherwiseexemptedbyafurtherdecisionofthePrincipalRegulator,theFilercomplieswitha)alloftheterms,conditions,restrictionsandrequirementsapplicabletoaregistereddealerundersecuritieslegislation,includingtheLegislation,andanyotherterms,conditions,restrictionsorrequirementsimposedbyasecuritiesregulatoryauthorityorregulatorontheFiler;b)thetermsandconditionsofthedecisiongrantedbytheAutoritédesmarchésfinanciersdatedAugust7,2020inrespectofrelieffromcertainrequirementsoftheDerivativesAct(Québec).
II.
WDAisregisteredasarestricteddealerintheJurisdictionandthejurisdictioninwhichtheclientisresident.
III.
TheFilerwillworkactivelyanddiligentlywithIIROCtotransitiontheoperationofthePlatformfromtheFilertoShareOwner.
IV.
TheFiler,andanyrepresentativesoftheFiler,willnotproviderecommendationsoradvicetoanyclientorprospectiveclientonthePlatform.
V.
TheFilerwillonlyengageinthebusinessoftradingCryptoRightsContractsinrelationtoCryptoAssets,andperformingitsobligationsunderthosecontracts.
TheFilerwillundertakenootheractivity.
VI.
TheFilerwillnotoperatea"marketplace"asthetermisdefinedinNationalInstrument21-101MarketplaceOperationandinOntario,insubsection1(1)oftheActora"clearingagency"asthetermisdefinedinsecuritieslegislation.
VII.
Atalltimes,theFilerwillholdtheCryptoAssetswithacustodianthatmeetsthedefinitionofaqualifiedcustodianunderNI31-103.
-11-VIII.
TheFilerwilltakereasonablestepstoverifythat:a)thecustodianhasappropriateinsurancetocoverthelossofCryptoAssetsheldatthecustodian;andb)thecustodian,hasestablishedandapplieswrittenpoliciesandproceduresthatmanageandmitigatethecustodialrisks,including,butnotlimitedto,aneffectivesystemofcontrolsandsupervisiontosafeguardthespecifiedcryptoassetsforwhichitactsascustodian.
IX.
TheFilerwillpromptlynotifythePrincipalRegulatoriftheU.
S.
SecuritiesandExchangeCommission,theU.
S.
CommodityFuturesTradingCommission,theFinancialIndustryRegulatoryAuthority,ortheNationalFuturesAssociation,makesadeterminationthattheFiler'scustodianisnotpermittedbythatregulatoryauthoritytoholdclientCryptoAssets.
X.
TheFilerwillonlyuseaLiquidityProviderthatithasverifiedisregisteredand/orlicensed,totheextentrequiredinitshomejurisdiction,toexecutetradesintheCryptoAssetsandisnotindefaultofsecuritieslegislation.
XI.
TheFilerwillevaluatethepriceobtainedfromitsLiquidityProvidersonanongoingbasisagainstglobalbenchmarksandwillprovidefairandreasonablepricestoitsclients.
XII.
Beforeeachclientopensanaccount,theFilerwilldelivertotheclientaRiskStatement,andwillrequiretheclienttoprovideelectronicacknowledgementofhavingreceived,readandunderstoodtheRiskStatement.
XIII.
ThedisclosureinconditionXIIwillbeprominentandseparatefromotherdisclosuresgiventotheclientaspartoftheaccountopeningprocess,andtheacknowledgementwillbeseparatefromotheracknowledgementsbytheclientaspartoftheaccountopeningprocess.
XIV.
AcopyoftheRiskStatementacknowledgedbyaclientwillbemadeavailabletotheclientinsameplaceastheclient'sotherstatementsintheApp.
XV.
TheFilerwillupdatetheRiskStatementtoreflectanymaterialchangestothedisclosureorincludeanymaterialrisksthatmaydevelopwithrespecttotheCryptoRightsContractsorCryptoAssetsand,intheeventofanyupdatetotheRiskStatement,willpromptlynotifyeachexistingclientoftheupdateanddelivertothemacopyoftheupdatedRiskStatement.
XVI.
PriortotheFilerdeliveringaRiskStatementtoaclient,theFilerwilldeliver,orwillhavepreviouslydelivered,acopyoftheRiskStatementdeliveredtotheclienttothePrincipalRegulator.
XVII.
Foreachclient,priortoopeninganaccount,theFilerwillperformanaccountappropriatenessassessmentandproduct-typeassessmentasdescribedinparagraph28.
-12-XVIII.
TheFilerwillmonitorclientactivity,andcontactclientstodiscusstheirtradingbehaviourifitindicatesalackofknowledgeorunderstandingofCryptoAssettrading,inanefforttoidentifyanddeterbehavioursthatmayindicatethattradingaCryptoRightsContractisnotappropriatefortheclient,orthatadditionaleducationisrequired.
XIX.
TheFilerwillensurethatthemaximumamountthataclientmayfund,ina12-monthperiod,totradepursuanttoCryptoRightsContracts,isC$30,000.
XX.
InthejurisdictionswheretheProspectusReliefisrequired,thefirsttradeofaCryptoRightsContractisdeemedtobeadistributionundersecuritieslegislationofthatjurisdiction.
XXI.
TheFilerwillprovidethePrincipalRegulatorwithatleast10days'priorwrittennoticeofany:a)changeofcustodian;andb)materialchangestotheFiler'sownershiporitsbusinessoperations,includingitssystems,oritsbusinessmodel.
XXII.
TheFilerwillnotifythePrincipalRegulator,promptly,ofanymaterialbreachorfailureofitscustodian'ssystemofcontrolsorsupervision,andwhatstepshavebeentakenbytheFilertoaddresseachsuchbreachorfailure.
Thelossofanyamountofspecifiedcryptoassetwillbeconsideredamaterialbreachorfailure.
DataReportingXXIII.
TheFilerwillprovidethefollowinginformationtothePrincipalRegulator,andtothesecuritiesregulatoryauthorityorregulatorineachoftheNon-PrincipalJurisdictionswithrespecttoclientsinthosejurisdictionsindividually,within30daysoftheendofeachMarch,June,SeptemberandDecember:a)aggregatereportingofactivityconductedpursuanttoCryptoRightsContractsthatwillincludethefollowing:1.
numberofclientaccountsopenedeachmonthinthequarter;2.
numberofclientaccountsclosedeachmonthinthequarter;3.
numberoftradeseachmonthinthequarter;4.
averagevalueofthetradeseachmonthinthequarter;5.
numberofclientaccountsthatholdover$10,000ofCryptoAssetsattheendofeachmonthinthequarter;6.
numberofclientaccountswithnotradesduringthequarter;7.
numberofclientaccountsthathavenotbeenfundedattheendofeachmonthinthequarter;and8.
numberofclientaccountsthatholdapositiveamountofCryptoAssetsatendofeachmonthinthequarter;b)thedetailsofanyclientcomplaintsreceivedbytheFilerduringthecalendarquarterandhowsuchcomplaintswereaddressed;and-13-c)thedetailsofanyfraudulentactivityorcybersecurityincidentsonthePlatformduringthecalendarquarter,anyresultingharmsandeffectsonclients,andthecorrectivemeasurestakenbytheFilertoremediatesuchactivityorincidentandpreventsimilaractivitiesorincidentsfromoccurringinthefuture.
XXIV.
TheFilerwilldelivertotheregulatororthesecuritiesregulatoryauthorityineachoftheApplicableJurisdictions,inaformandformatacceptabletotheregulatororthesecuritiesregulatoryauthority,areportthatincludesthefollowinganonymizedaccount-leveldataforactivityconductedpursuanttoaCryptoRightsContractforeachclientwithin30daysoftheendofeachMarchJune,SeptemberandDecember:a)uniqueaccountnumberanduniqueclientidentifier,asapplicable;b)jurisdictionwheretheclientislocated;c)cumulativerealizedgains/lossessinceaccountopeninginCAD;d)unrealizedgains/lossesasofthereportenddateinCAD;e)quantitytradedbyCryptoAssetduringthequarterinnumberofunits;f)CryptoAssettradedbytheclient(BTCorETH);g)quantityheldofeachCryptoAssetbytheclientasofthereportenddateinunits;h)CADequivalentaggregatevalueforeachCryptoAssettradedbytheclient,calculatedastheamountin(g)multipliedbythemarketpriceoftheassetin(f)asofthereportenddate;i)ageofaccountinmonths.
XXV.
UntilsuchtimeastheFilercandeliverannualauditedfinancialstatementsinaccordancewithsubsection12.
10(2)ofNI31-103,theFilerwilldeliverannualunauditedfinancialstatementsoftheFilerandtheannualauditedfinancialstatementsofWFCforeachfinancialyeartothePrincipalRegulatorassoonastheyareavailable.
XXVI.
InadditiontoanyotherreportingrequiredbyLegislation,theFilerwillprovide,onatimelybasis,anyreport,data,documentorinformationtothePrincipalRegulator,includinganyinformationabouttheFiler'scustodianandtheCryptoAssetsheldbytheFiler'scustodian,thatmayberequestedbythePrincipalRegulatorfromtimetotimeasreasonablynecessaryforthepurposeofmonitoringcompliancewithLegislationandtheconditionsintheDecision,inaformatacceptabletothePrincipalRegulator.
XXVII.
Uponrequest,theFilerwillprovidethePrincipalRegulatorandthesecuritiesregulatorsorsecuritiesregulatoryauthoritiesofeachoftheNon-PrincipalJurisdictionswithaggregatedand/oranonymizeddataconcerningclientdemographicsandactivityonthePlatformthatmaybeusefultoadvancethedevelopmentoftheCanadianregulatoryframeworkfortradingcryptoassets.
XXVIII.
ThisDecisionshallexpireupontheearlierof:a)twoyearsfromthedateofthisDecision;orb)thedateofthetransitionofthePlatformtoShareOwner.
XXIX.
TheFilerwillpromptlymakeanychangestoitsbusinesspracticesorpoliciesandproceduresthatmayberequiredtoaddressinvestorprotectionconcernsthatmaybe-14-identifiedbytheFilerorbythePrincipalRegulatorarisingfromtheoperationofthePlatform.
XXX.
ThisDecisionmaybeamendedbythePrincipalRegulatoruponpriorwrittennoticetotheFiler.
InrespectoftheProspectusRelief:"WendyBerman""TimMoseley"WendyBermanViceChairOntarioSecuritiesCommissionTimMoseleyViceChairOntarioSecuritiesCommissionInrespectoftheRequestedReliefotherthantheProspectusRelief:"PatChaukos"PatChaukosDirector,OfficeofEconomicGrowthandInnovationOntarioSecuritiesCommissionAppendixA-LocalTradeReportingRulesInthisDecisionthe"LocalTradeReportingRules"collectivelymeanseachofthefollowing:a.
Part3,DataReportingofOntarioSecuritiesCommissionRule91-507TradeRepositoriesandDerivativesDataReporting(OSCRule91-507);b.
Part3,DataReportingofManitobaSecuritiesCommissionRule91-507TradeRepositoriesandDerivativesDataReporting(MSCRule91-507);andc.
Part3,DataReportingofMultilateralInstrument96-101TradeRepositoriesandDerivativesDataReportinginAlberta,BritishColumbia,NewBrunswick,NewfoundlandandLabrador,NorthwestTerritories,NovaScotia,Nunavut,PrinceEdwardIsland,Saskatchewan,andYukon(MI96-101).
AppendixB–DisclosuretobeIncludedinRiskStatementDisclosureStatementforCryptoAssetsThisStatementispresentedtoyouatthetimeofopeningyouraccountandisavailabletoyouwithinyourdocumentssettingsintheWealthsimpleTradeApp.
Youmustacknowledgehavingreceived,readandunderstoodthisStatementinordertoopenandoperateaWealthsimpleCryptoaccount.
PleasereadthisStatementinitsentirety.
TheStatementdoesnotdisclosealloftherisksorrelevantconsiderationsofenteringintoacontractwithWealthsimpleDigitalAssets(WDA)tobuy,sellandholdCryptoAssets.
Inlightoftherisks,youshouldundertakesuchtransactionsonlyifyouunderstandthenatureofthecontractualrelationshipwithWDAintowhichyouareentering,andtheextentofyourexposuretotherisksassociatedwithtradinginCryptoAssets.
PleaserefertoWDA'sClientRelationshipDisclosure[link]foramoredetaileddescriptionofthisrelationship.
TherearelimitedcircumstancesinwhichyoucanobtainpossessionoftheCryptoAssetsyouhavepurchased(see"ClosedLoopSystem"below).
TheCryptoAssetsthatyouhavepurchasedwillbeheldintrustforyou,inapooledaccountthatisinthenameofWDA,atathird-partycustodianindependentofWDA.
Assuch,thereisariskyouwillnotbeabletosuccessfullyobtainpossessionoftheCryptoAssets,andariskthattheassetsinthispooledaccountwillnotbesufficienttoensurethatyoureceivethevalueofyourinterestintheCryptoAssets.
TradinginCryptoAssetsmaynotbesuitableforcertainmembersofthepublic.
Youshouldcarefullyconsiderwhethertradingisappropriateforyouinlightofyourknowledge,experience,financialobjectives,financialresourcesandotherrelevantcircumstances.
IntroductionWDAbelievesthatitscustomersshouldbeawareoftherisksinvolvedinthepurchase,saleandcustodyofCryptoAssets.
CryptoAssettradingmaynotbeappropriateforyou,particularlyifyouusefundsdrawnfromretirementsavings,studentloans,mortgages,emergencyfunds,orfundssetasideforotherpurposes.
ThevolatilityandunpredictabilityofthepriceofCryptoAssetsrelativetofiatcurrencymayresultinsignificantlossoverashortperiodoftime.
Thefollowingisabriefnon-exhaustivesummaryofcertainmoresignificantfactorsandspecialrisksyoushouldtakeintoaccountwhendecidingwhethertotradeCryptoAssets.
WhatareCryptoAssetsCryptoAssetsaredigitalrepresentationsofvaluethatfunctionasamediumofexchange,aunitofaccount,orastoreofvalue,butdonothavelegaltenderstatus.
CryptoAssetsaresometimesexchangedforcurrencies,buttheyarenotgenerallybackedorsupportedbyanygovernmentorcentralbank.
Theirvalueisderivedbymarketforcesofsupplyanddemand,andtheyaretraditionallymorevolatilethanfiatcurrencies.
ThevalueofCryptoAssetsmaybederivedfromthecontinuedwillingnessofmarketparticipantstoexchangefiatcurrencyforCryptoAssets,whichmayresultinthepotentialforpermanentandtotallossofvalueofaparticularCryptoAssetshouldthemarketforaCryptoAssetdisappearentirely.
Federal,provincial,territorialorforeigngovernmentsmayrestricttheuseandexchangeofCryptoAssets,andregulationinNorthAmericaisstilldeveloping.
CryptoAssetsdifferintheirfunctions,structures,governanceandrights.
WealthsimplepermitsthetradingofwellestablishedCryptoAssetsthatfunctionasaformofpaymentormeansofexchangeonadecentralizednetwork,suchasbitcoinandether.
TheseCryptoAssetshavecertainfeaturesthatareanalogoustoexistingcommodities,suchascurrenciesandpreciousmetals,butarealsodifferentinmanykeyrespects,asdescribedinthisdisclosurestatement.
RisksinTradingCryptoAssetsThefollowingisabriefsummaryofsomeoftherisksconnectedwithtradingCryptoAssets.
(1)ShortHistoryRiskAsarelativelynewopensourcetechnology,itisexpectedthattherewillcontinuetobetechnicaldevelopmentsinblockchaintechnology,whichcouldimpactthevalueofaCryptoAsset.
Duetothisshorthistory,itisnotcertainwhethertheeconomicvalue,governanceorfunctionalelementsofCryptoAssetswillpersistovertime.
TheCryptoAssetcommunityhassuccessfullynavigatedaconsiderablenumberoftechnicalandpoliticalchallengessincethegenesisofthebitcoinblockchain,whichWDAbelievesisastrongindicatorthatitwillcontinuetoengineeritswayaroundfuturechallenges.
Thatsaid,thecontinuationofavibrantCryptoAssetcommunityisnotguaranteed,andinsufficientsoftwaredevelopment,contributionrates,communitydisputesregardingthedevelopmentofthenetworkandscalingoptions,oranyotherunforeseenchallengesthatthecommunityisnotabletonavigatecouldhaveanadverseimpactonthepriceofaCryptoAsset.
Opensourcedevelopersofblockchaintechnologyhavesignalledthattheywillcontinuetomakeeffortstoimprovethescaleabilityandsecurityofpublicblockchainslikebitcoinandethereum.
Forexample,inrespectoftheethereumblockchain,developersareplanningtoreplacethecurrenthash-basedminingconsensusmechanismofproof-of-workwithaproof-of-stakemechanism.
Changesmayalsooccurtothebitcoinblockchain,forexamplewiththecontinueddevelopmentofscaleabilityprotocolsliketheLightningNetwork,whichoperateontopofthebitcoinblockchain.
Theexpectedtimingandimpactsofthischangeareuncertain.
(2)VolatilityinthePriceofCryptoAssetandLossofLiquidityTheCryptoAssetmarketsaresensitivetonewdevelopments,andsincevolumesarestillmaturing,anysignificantchangesinmarketsentiment(bywayofsensationalisminthemediaorotherwise)caninducelargeswingsinvolumeandsubsequentpricechanges.
CryptoAssetpricesontradingplatformshavebeenvolatileandsubjecttoinfluencebymanyfactors,includingthelevelsofliquidity,publicspeculationonfutureappreciationinvalue,swingsininvestorconfidenceandthefuturegrowthofalternativeCryptoAssetsthatmaygainmarketshare.
Incertaincircumstances,itmaybecomedifficultorimpossibletoassessthevalueofyourCryptoAssets.
ThetradingofCryptoAssetsonpublictradingplatformshasalimitedhistory.
Thepricesavailableonthoseplatformshave,insomecases,beenmorevolatileandsubjecttoinfluencebyadditionalfactorsnotspecifictothevalueofCryptoAssets,includingliquiditylevelsandoperationalinterruptions.
OperationalinterruptionscanlimittheliquidityofCryptoAssetsonthetradingplatform,whichcouldresultinvolatilepricesandreducedconfidenceintheCryptoAssetstradedonthoseplatforms.
WealthsimpleCryptousesmultiplebrokers,whichwerefertoasliquidityproviders,tobuyandselltheCryptoAssetsthatwetradeforyou.
TheseliquidityprovidersconnecttomultipletradingplatformsinordertoensureongoingliquidityofCryptoAssets.
Useofmultipleliquidityprovidersandmultipletradingplatformsisdesignedtoreducetheliquidityriskandoperationalriskassociatedwithanyonetradingplatform.
However,thereisariskthattheliquiditysourcesaccesseddirectlyandindirectlybyWealthsimpleCryptoareunabletoreturnthebestpossiblepricesorexecutionqualityonyourbehalf.
Thisriskmaybegreaterduringperiodsofhighmarketvolatilityoroperationaloutagesatamajortradingplatform.
(3)PotentialDecreaseinGlobalDemandforCryptoAssetsCryptoAssetsrepresentanewformofdigitalvaluethatisstillbeingdigestedbysociety.
Theirunderlyingvalueisdrivenbytheirutilityasastoreofvalue,meansofexchange,orunitofaccount.
Justasoilispricedbythesupplyanddemandofglobalmarkets,asafunctionofitsutilityto,forinstance,powermachinesandcreateplastics,sotooisaCryptoAssetpricedbythesupplyanddemandofglobalmarketsforitsownutilitywithinremittances,B2Bpayments,time-stamping,etc.
SpeculatorsandinvestorsusingCryptoAssetasastoreofvaluethenlayerontopofmeansofexchangeusers,creatingfurtherdemand.
IfconsumersstopusingCryptoAssetsasameansofexchange,ortheiradoptionslows,thenthepricemaysuffer.
InvestorsshouldbeawarethatthereisnoassurancethatCryptoAssetswillmaintaintheirlong-termvalueintermsofpurchasingpowerinthefutureorthattheacceptanceofCryptoAssetsforpaymentsbymainstreamretailmerchantsandcommercialbusinesseswillcontinuetogrow.
Whilethevalueofbitcoinmaybederivedprimarilyfromitscapitalizationandpositionasfirstmover,thevalueofetherreliesfarmoreonitsunderlyingblockchaintechnology.
Theethereumblockchainisintendedtoallowpeopletooperatedecentralizedapplicationsusingblockchaintechnologythatdonotrelyontheactionsofacentralizedintermediary.
Ether,whichistheprimarycurrencyoftheethereumblockchain,canthenbeusedtocompensatefortheeffortofotherstopowerthesedecentralizedapplicationsandensurethatanytransactionsthatoccurontheseapplicationsarerecordedintheblockchain.
Accordingly,thelongtermvalueofethermaybetiedtothesuccessorfailureoftheblockchaintechnologyandthedecentralizedapplicationsbuiltupontheethereumblockchain.
(4)TheBlockchainsonwhichCryptoAssetsoperatemayTemporarilyorPermanentlyForkBoththebitcoinandethereumblockchainnetworksarepoweredbyopensourcesoftware.
Whenamodificationtothatsoftwareisreleasedbydevelopers,andasubstantialmajorityofminersconsenttothemodification,achangeisimplementedandtheblockchainnetworkcontinuesuninterrupted.
However,ifachangeweretobeintroducedwithlessthanasubstantialmajorityconsentingtotheproposedmodification,andthemodificationisnotcompatiblewiththesoftwareinoperationpriortoitsmodification,theconsequencewouldbewhatisknownasa"fork"(i.
e.
asplit)oftheblockchain.
Oneblockchainwouldbemaintainedbythepre-modificationsoftwareandtheotherbythepost-modificationsoftware.
Theeffectisthatbothblockchainswouldoperateinparallel,butindependently.
Thereareexamplesofsuchforksoccurringinthepastonboththebitcoinandethereumblockchainnetworks.
Inthefuture,suchaforkcouldoccuragain,andaffecttheviabilityorvalueofaCryptoAsset.
WealthsimpleCryptomaychoosenottosupportanyfutureforkoftheunderlyingblockchainoftheCryptoAssetsavailableonourplatform,inwhichcaseyoumaynothaveanyrightstothenewcryptoassetsthatmaybecreatedasaresultofthatfork.
(5)IssueswiththeCryptographyUnderlyingtheCrypto-networksInthepast,flawsinthesourcecodefordigitalassetshavebeenexposedandexploited,includingflawsthatdisabledsomefunctionalityforusers,exposedusers'personalinformationand/orresultedinthetheftofusers'digitalassets.
Althoughthebitcoinandethereumblockchainshavedemonstratedresiliencyandintegrityovertime,thecryptographyunderlyingeitheronecould,inthefuture,provetobeflawedorineffective.
Forexample,developmentsinmathematicsand/ortechnology,includingadvancesindigitalcomputing,algebraicgeometryandquantumcomputing,couldresultinthecryptographyoftheblockchainnetworkbeingvulnerabletoattack.
ThiscouldnegativelyaffectthevalueofCryptoAssetstradedwithWealthsimpleCrypto.
(6)UncertaintyinRegulationandFutureFinancialInstitutionSupportTheregulationofCryptoAssetscontinuestoevolveinCanadaandinforeignjurisdictions,whichmayrestricttheuseofCryptoAssetsorotherwiseimpactthedemandforCryptoAssets.
TheremaybelimitationsontheabilityofasecuritiesregulatorinCanadatoenforceCanadianlawsonforeignentities,andforeignrulesthatapplytoCryptoAssetactivitieswhichoccurinotherjurisdictionsmaynotnecessarilybeenforcedinthatjurisdiction.
Furthermore,banksandotherfinancialinstitutionsmayrefusetoprocessfundsforCryptoAssettransactions,processwiretransferstoorfromCryptoAssettradingplatforms,CryptoAsset-relatedcompaniesorserviceproviders,ormaintainaccountsforpersonsorentitiestransactinginCryptoAssets.
(7)ConcentrationRisksCertainaddressesonthebitcoinandethereumblockchainnetworksholdasignificantamountofthecurrentlyoutstandingbitcoinandether,respectively.
Ifoneoftheseaddressesweretoexittheirbitcoinoretherpositions,itcouldcausevolatilitythatmayadverselyaffecttheprice.
Further,ifanyonegainscontrolover51%ofthecomputingpower(hashrate)usedbytheblockchainnetwork,theycouldusetheirmajoritysharetodoublespendtheirCryptoAssets.
Ifsucha"51%attack"weretobesuccessful,thiswouldsignificantlyerodetrustinpublicblockchainnetworkslikebitcoinandethereumtostorevalueandserveasameansofexchange,whichmaysignificantlydecreasethevalueofCryptoAssets.
(8)ElectronicTradingandDependenceontheInternetTherearerisksassociatedwithusinganinternet-basedtradeexecutionsoftwareapplicationincluding,butnotlimitedto,thefailureofhardwareandsoftware.
WDAmaintainsanindependentandsecureledgerofalltransactionstominimizeloss,andmaintainscontingencyplanstominimizethepossibilityofsystemfailure.
However,WDAdoesnotcontrolsignalpower,reception,routingviatheinternet,configurationofyourequipmentorthereliabilityofyourconnectiontotheinternet.
Theresultofanyfailureoftheforegoingmaybethatyouareunabletoplaceanorder,yourorderisnotexecutedaccordingtoyourinstructions,oryourorderisnotexecutedatall.
Undercertainmarketconditions,youmayfinditdifficultorimpossibletoliquidateapositionquicklyatareasonableprice.
Thiscanoccur,forexample,whenthemarketforaparticularCryptoAssetsuddenlydrops,oriftradingishaltedduetorecentnewsevents,unusualtradingactivity,orchangesintheunderlyingCryptoAssetsystem.
ThegreaterthevolatilityofaparticularCryptoAsset,thegreaterthelikelihoodthatproblemsmaybeencounteredinexecutingatransaction.
Inadditiontonormalmarketrisks,youmayexperiencelossesduetooneormoreofthefollowing:systemfailures,hardwarefailures,softwarefailures,networkconnectivitydisruptions,anddatacorruption.
(9)CyberSecurityRiskThenatureofCryptoAssetsmayleadtoanincreasedriskoffraudorcyberattack.
AbreachincybersecurityreferstobothintentionalandunintentionaleventsthatmaycauseWDAtoloseproprietaryinformationorotherinformationsubjecttoprivacylaws,sufferdatacorruption,orloseoperationalcapacity.
ThisinturncouldcauseWDAtoincurregulatorypenalties,reputationaldamage,additionalcompliancecostsassociatedwithcorrectivemeasuresand/orfinancialloss.
CybersecuritybreachesmayinvolveunauthorizedaccesstoWDA'sdigitalinformationsystems(e.
g.
through"hacking"ormalicioussoftwarecoding),butmayalsoresultfromoutsideattackssuchasdenial-of-serviceattacks(i.
e.
effortstomakenetworkservicesunavailabletointendedusers).
Inaddition,cybersecuritybreachesofWDA'sthird-partyserviceproviders(e.
g.
theliquidityprovidersandcustodian)canalsogiverisetomanyofthesamerisksassociatedwithdirectcybersecuritybreaches.
Aswithoperationalriskingeneral,WDAhasestablishedriskmanagementsystemsdesignedtoreducetherisksassociatedwithcybersecurity.
(10)ClosedLoopSystemWhenyouenterintoacontractwithWDAtobuyandsellCryptoAssets,thatcontractprovidesyouwithcertainrightsandimposescertainresponsibilities;thecontract,andyourcontractualrighttothecryptoassetsthatyoumaybuy,holdandsellpursuanttothecontract,constituteasecurityorderivative.
Inparticular,thecontractyousignwithWDAenablesyoutobuy,sellandholdCryptoAssetswithouttheneedforyoutoreceiveandholdyourCryptoAssetsinyourownprivatewallet.
Werefertothisasa"closedloop"system.
WebelievethataclosedloopsystemsignificantlyreducesthelikelihoodofusererrorinsendingorreceivingCryptoAssetstoincorrectwalletaddresses.
However,aclosedloopsystemmayalsoexposeyoutoinsolvencyrisk(creditrisk),fraudriskorproficiencyriskonthepartofWDAorthecustodiandesignatedtoholdyourCryptoAssets.
(11)LackofInvestorProtectionInsuranceCryptoAssetspurchasedandheldinanaccountwithWDAarenotprotectedbytheCanadianInvestorProtectionFund,theCanadianDepositInsuranceCorporationoranyotherinvestorprotectioninsurancescheme.
(12)CommissionandOtherChargesAlthoughWDAdoesnotchargeacommissionfee,therearecertaincostsbuiltintothespreadofferedonyourpurchaseandsaleofCryptoAssets,asdisclosedtoyouwithintheWealthsimpleTradeapp.
Feesarebasedinpartonthefeeschargedtousbyourthird-partyliquidityprovidersandcustodian,whicharesubjecttochange.