Wealthsimple Has the First Regulated Crypto Trading Platform in Canada. But What Does That Even Mean?
It means that there’s a ton of data and paper trails and people who work for the government ensuring that you’re paying the true market price, that your crypto is safe after you buy it, and that, generally speaking, there’s nothing shady going on here.
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On August 7, 2020, Wealthsimple Crypto became the first way to buy and sell cryptocurrency in Canada that’s regulated by the government. Regulation sounds boring, so we grilled Blair Wiley, Wealthsimple's general counsel (i.e., head lawyer guy) about why we went out of our way to actually ask to be regulated.
Wealthsimple: So why am I talking to you? Are you the head guy in charge of regulators here?
Blair Wiley: Yup. Part of my role as general counsel is responsibility for “regulatory affairs.”
WS: Does that mean you have to talk to a regulator all the time? Do you, like, get little gifts for them to keep them on your good side?
BW: No! That would be illegal! Also, it’s not one person. It’s multiple offices of regulators — there are 13 provinces and territories in Canada, and each one regulates us. Plus, we are regulated by the federal government.
WS: Let me ask: Did you actually want to be regulated? Is that possible?
BW: Yes, we wanted to be regulated. Cryptocurrency is a valuable asset, and we wanted to be able to help people buy, sell, and hold it in the most responsible way.
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WS: But aren’t businesses supposed to not want to be regulated? What’s so great about being regulated? In 15 words or less.
BW: Hmm. We have to meet a high bar for business conduct set by the government, which protects our clients and improves our product. Is that 15 words?
WS: I think it’s more. But I also kind of don’t get it.
BW: I don’t get what you don’t get.
WS: Does it mean that the government looks at everything you do and determines that you’re operating safely and above board?
BW: Yes, that’s pretty accurate.
WS: So it’s like being able to label something “organic”? Wealthsimple has the first certified organic way to buy and sell crypto?
BW: That’s a good analogy. We have to meet a bunch of strict requirements, just like a farmer has to meet a bunch of requirements for her product to be certified “organic.”
WS: If, as you claim, it’s a good thing for a crypto platform to be regulated, how come no one in Canada has done it before?
BW: The “How come no one else has done this?” is a tough question. Probably the simplest explanation is that folks who came before us tried to do everything — buy and sell crypto for clients, operate an exchange, hold onto the crypto that clients buy (what’s called providing custody). And each one of those activities has its own long list of regulatory requirements. If one business tries to do all that, it makes getting regulatory approval a lot harder.
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Also, crypto is still pretty new — it’s an emerging space when it comes to regulation. We’re the first, and I’m sure others will follow.
WS: I think what you’re saying is that the reason we were able to do it first is that we were more… SIMPLE?
BW: Yes! We were simple. We decided that the best option for us was to focus on simply allowing clients to buy and sell crypto. We instead worked with other companies that had deep expertise in the other elements of crypto trading. We have partnerships with two market makers that work with multiple exchanges. An exchange is the marketplace where crypto is bought and sold, the same way stocks are bought and sold on a stock exchange. And we have Gemini providing custody services.
WS: So what about your partners. Like, isn’t it kind of a lie to say Wealthsimple is regulated if the partners aren’t regulated too?
BW: Let’s take our partner Gemini. Gemini is what’s called a custodian. Its job is to hold our clients’ cryptocurrency in what’s called cold storage. It sits on servers that aren’t connected to the internet to keep it away from anyone with malicious intent, like the scammers and thieves who have targeted crypto precisely because it’s unregulated, untraceable, etc. Gemini is regulated — as a trust company, it has to adhere to very strict requirements for financial controls, solvency, financial reporting, security, and compliance. Because Gemini is regulated, its system has been tested by external auditors, and Gemini maintains hundreds of millions of dollars of insurance coverage for the cryptocurrency it holds for its customers.
Regulation also requires us to ensure that clients are buying and selling crypto at a fair price. That’s important too. There are three different companies who work together to buy or sell your crypto. We enable you to make the transaction of buying or selling crypto. Gemini holds your crypto after you buy it. And a market maker checks the price on multiple exchanges to make sure you’re getting the best price. Each link in the chain we use for Wealthsimple Crypto, ourselves included, is regulated and above board.
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WS: How do you prove to regulators that you’re buying and selling crypto at a fair price?
BW: We work with market makers that connect to the largest cryptocurrency exchanges in the world and use algorithms to get the best prices possible on those exchanges, which they pass on to Wealthsimple and we then pass on to clients. It’s important to go to the exchanges with the most buyers and sellers. It results in the best prices.
WS: So that means you’re not gouging your customers by only going to one exchange because you have an arrangement with them?
BW: That’s right. Or trading against your clients and setting your own price, which may not be anywhere close to the best global prices.
WS: How could Wealthsimple lose that regulatory “seal of approval”? What could it do so it wouldn’t be able to call itself the only organic crypto platform?
BW: Well, if we didn’t have insurance, we couldn’t be regulated — that’s a simple one. Insurance covers client losses that result from honest mistakes and events outside our control, like, say, a fire that damaged equipment or something (although we have backup equipment for anything like that). If you use an unregulated platform, you won’t know if it has insurance or not.
Being regulated also means that we keep incredibly detailed financial records we are transparent about, and that anyone at Wealthsimple who’s responsible for your crypto trades has been carefully screened and has passed background checks.
WS: So basically what you’re saying is, in a crypto world of anonymity and shady actors lurking among the (vast majority of) credible, well-meaning people, you know that someone trustworthy is pricing your crypto trade, executing that trade, and holding onto the crypto you’ve bought.
BW: That’s exactly right.
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