Codifying Crypto: Changes to National Instrument 81-102 Regarding Investments in Crypto Assets

Codifying Crypto: Changes to National Instrument 81-102 Regarding Investments in Crypto Assets

On April 17, 2025, the Canadian Securities Administrators (“CSA”) announced the adoption of amendments to National Instrument 81-102 – Investment Funds (“NI 81-102”) and related changes to its companion policy (collectively, the “Amendments”) regarding investments in crypto assets by reporting issuer investment funds (“Public Crypto Asset Funds”). NI 81-102 does not currently contain specific provisions relating to investments in crypto assets.

The Amendments seek to clarify the regulatory standards applicable to Public Crypto Asset Funds by codifying certain practices and standards developed through the prospectus review process and previously granted exemptive relief decisions. Provided all necessary ministerial approvals are obtained, the Amendments are set to come into force on July 16, 2025.

Background

The Amendments are part of the second phase in a three-phase project undertaken by the CSA to implement a regulatory framework for Public Crypto Asset Funds that aims to ensure adequate investor protection and mitigate potential risks while providing greater regulatory clarity for product development and management. The below provides a brief overview of the three phases.

The Amendments

Certain of the key changes to NI 81-102 and its companion policy are summarized below:

Types of Funds that Can Invest in Crypto Assets (Directly or Indirectly)

• Only alternative mutual funds and non-redeemable investment funds will be able to buy, sell, hold, or use crypto assets directly.  This restriction would also generally apply to investing indirectly in crypto assets through specified derivatives.
• The definition of “alternative mutual fund” will be amended to specifically include mutual funds that invest in crypto assets.
• Mutual funds, other than alternative mutual funds, will be prohibited from investing in crypto assets, except in the following circumstances:
  • The fund is investing in an underlying alternative mutual fund or non-redeemable fund that invests in crypto assets (subject to the fund of fund restrictions in NI 81-102); or
  • The fund is investing in a specified derivative for which the underlying interest is a crypto asset (a “Crypto Derivative”) that trades on an exchange recognized by a Canadian securities regulatory authority (or, in British Columbia, is recognized in British Columbia or designated for this purpose) and such investment complies with the 10% investment restriction set out in Section 2.3 of NI 81-102.

Guidance on what is a “Crypto Asset” and Restrictions on Investments

• Guidance is being added to the companion policy clarifying that the regulators will generally consider a “crypto asset” to include any digital representation of value that uses cryptography and distributed ledger technology, or a combination of similar technology, to record transactions.  However, this notably is not intended to be a legal definition of the term.
• Alternative mutual funds and non-redeemable investment funds will only be able to invest in fungible crypto assets that are either (i) listed for trading on, or (ii) are the underlying interest of a specified derivative that trades on, an exchange recognized by a Canadian securities regulatory authority (or, in British Columbia, is recognized in British Columbia or designated for this purpose). Similar restrictions apply to investments in Crypto Derivatives.
• The companion policy clarifies that the listing on a “recognized exchange” requirement is not intended to restrict funds to only purchasing qualifying crypto assets through such an exchange.  Funds may purchase qualifying crypto assets from other sources, such as crypto trading platforms.

Custody Requirements Applicable to the Holding of Crypto Assets on Behalf of Investment Funds

• Custodians will be required to hold crypto assets on an offline private cryptographic key (commonly referred to as a “cold wallet”) except as required to complete a transaction of the fund.
• Custodians will be required to obtain, at least annually, and deliver to the investment fund a public accountant’s report (such as a System and Organization Controls 2 Type II Report (SOC-2 Type II report)) during a 12-month period.  The companion policy will also be updated to include further guidance on this requirement.
• Before a custodian first takes custody of crypto assets or resumes custody, the custodian must obtain the required public accountant’s report that relates to a 12-month period ended no more than 15 months prior and deliver same to the investment fund.
• The above requirements applicable to custodians also generally apply to sub-custodians with some minor modifications.
• Guidance is being added to the companion policy on how the existing standard of care for custodians and sub-custodians in NI 81-102 might apply in the context of crypto assets, including best practice suggestions.

The Use of Crypto Assets as Subscription Proceeds for In-Kind Purchases

• Mutual funds that hold crypto assets can accept those crypto assets as subscription proceeds only if (i) the mutual fund is permitted to purchase those crypto assets, (ii) the crypto assets are acceptable to the portfolio advisor and consistent with the investment objectives of the mutual fund, and (iii) the value of the crypto assets are at least equal to the issue price of the securities of the mutual fund for which they are payment.

For further information on the Amendments or any other regulatory developments applicable to the use of crypto assets by participants in the investment funds and asset management industry, please reach out to any member of the McMillan Crypto team.

About McMillan Crypto

McMillan has a comprehensive understanding of blockchain, cryptocurrency, digital assets and other decentralized technologies. We use an integrative, pragmatic, and proactive approach when providing counsel in connection with an ever-changing regulatory landscape. Our cross-disciplinary team brings together specialists across many fields, including litigation, securities regulation, capital markets, investment funds and asset management, mergers and acquisitions, derivatives, technology, privacy and cybersecurity, intellectual property, consumer protection, anti-money laundering, financial services, tax, and bankruptcy and insolvency.

by Jennie Baek and Karan Lall (Articling Student)

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2025