New CSA Amendments Regarding Investments in Crypto Assets Come into Force

Written By Andrew Bozzato, Simon Grant, Doug Fenton, Dylan Yegendorf and Asif Zalfackruddin

New amendments and changes to National Instrument 81-102 Investment Funds (NI 81-102) and its Companion Policy 81-102CP took effect on July 16, 2025, regulating public investment funds that invest in crypto assets.

The stated objective of these amendments and changes, which were first adopted by the Canadian Securities Administrators (CSA) on April 17, 2025, is to codify the practices of existing public investment funds investing in crypto assets in Canada; provide greater regulatory clarity to public investment funds regarding their investments in crypto assets; and create a regulatory framework that facilitates new product development while also ensuring appropriate risk mitigation measures. 

As described in further detail below, the amendments and changes establish:

• Criteria regarding the types of crypto assets that investment funds are permitted to purchase, use and/or hold, as well as further regulatory guidance on what the CSA considers to be "crypto assets";
• Limitations on investments in crypto assets by investment funds, including alternative mutual funds, non-redeemable investment funds and traditional mutual funds; and
• Requirements concerning custodianship of crypto assets held on behalf of an investment fund, including storage requirements and best practices, and annual reporting obligations.

Key Amendments and Changes 

The amendments and changes to NI 81-102 and its Companion Policy introduce several structural and operational updates for investment funds investing (directly or indirectly) in crypto assets.

Updated Definitions of "Alternative Mutual Fund" and "Crypto Assets"

In section 1.1 of NI 81-101, the definition of "alternative mutual fund" has been amended to expressly include "crypto assets" as one of its permitted investments, aligning the regulatory definition with current market practice.

The Companion Policy adds further guidance (at section 2.01) on what the CSA considers to be a "crypto asset", for the purposes of NI 81-102, which it describes as including "any digital representation of value that uses cryptography and distributed ledger technology, or a combination of similar technology, to record transactions." Although expressly not a legal definition, this guidance provides a practical baseline for determining asset eligibility when navigating investment funds regulations in Canada.

Restrictions on Investments in Crypto Assets

Section 2.3 of NI 81-102 has been amended to permit alternative mutual funds(and non-redeemable investment funds) to purchase, sell, use or hold crypto assets, provided that the crypto asset is fungible and either of the following apply:

• the crypto asset trades on an exchange recognized by a securities regulatory authority in a jurisdiction in Canada; or
• the crypto asset is the underlying asset of a specified derivative that trades on an exchange recognized by a securities regulatory authority in a jurisdiction in Canada.

The amendment also allows traditional mutual funds (i.e., other than alternative mutual funds) to gain indirect exposure to crypto assets by investing in a specified derivative that is listed for trading on a recognized exchange in Canada.

The Companion Policy clarifies (at section 3.3.01) that the "recognized exchange" requirement in NI 81-102, above, is not intended to restrict investment funds to only purchasing crypto assets through a recognized exchange.  In other words, it is not a restriction on how funds may acquire crypto assets.  Rather, the "recognized exchange" requirement is only meant to be the criteria for determining the eligibility of the underlying crypto asset itself. Eligible funds are still permitted to acquire crypto assets from other sources, such as registered crypto asset trading platforms provided that the underlying crypto asset meets the criteria set out in NI 81-102.

Custodianship of Crypto Assets

Storage Requirements and Best Practices

Section 6.5 of NI 81-102 has been amended to provide that custodians or sub-custodians holding crypto assets on behalf of an investment fund must hold the private cryptographic keys to those assets in offline storage (also know as a "cold wallet"), except when the crypto assets are required to facilitate a portfolio transaction of the investment fund. 

The Companion Policy reinforces the storage requirements, stating (at section 8.1) that custodians and sub-custodians are expected to implement policies and procedures that address "the unique risks concerning safeguarding of crypto assets compared to other assets." To that end, the Companion Policy outlines examples of industry best practices, which include (i) the use of segregated wallets, (ii) blockchain reconciliation procedures, (iii) multi-signature protections and insurance coverage, among others.

The Companion Policy further states that the CSA expects investment fund managers to take note of these policies and procedures in conducting their due diligence on custodians or sub-custodians to hold crypto assets for an investment fund, consistent with their fiduciary obligations.

Annual Reporting Obligations

Section 6.7 of NI 81-102 has been amended to require all custodians or sub-custodians holding crypto assets for an investment fund to obtain (and deliver to the investment fund) an annual assurance report, prepared by a public accountant, assessing the design and operational effectiveness of the service and system relating to their crypto asset custody, during a 12-month period. A custodian or sub-custodian may not hold crypto assets for an investment fund unless (i) it has obtained an assurance report within 15 months of the date on which the custodian or sub-custodian first holds crypto assets for the fund, and (ii) the custodian or sub-custodian has delivered a copy of the report before the date it first holds the crypto assets of the investment fund.

The Companion Policy confirms (at section 8.3) that this requirement can be satisfied by obtaining a System and Organization Controls (SOC) 2 Type II Report, prepared by a public accountant, in accordance with the reporting framework developed by the American Institute of Chartered Public Accountants.      

Crypto Assets as Subscription Proceeds

Section 9.4 of NI 81-102 has been amended to permit mutual funds that hold crypto assets to accept those crypto assets as subscription proceeds, provided that (i) the mutual fund would at the time of payment be permitted to purchase those crypto assets; (ii) the crypto assets are consistent with the fund's investment objectives; and (iii) the crypto assets are at least equal in value to the issue price of the fund's securities for which they are being used as payment.

Key Takeaways

• Expanded Crypto Exposure for Investment Funds (With Limits): The amendments and changes recognize the existing market practice of alternative mutual funds increasing their exposure (both directly and indirectly) to qualified crypto assets, while also permitting traditional mutual funds to gain indirect exposure to crypto assets by investing in qualified derivatives.
• Heightened Custodial and Diligence Standards: Custodians or sub-custodians holding crypto assets of an investment fund must (i) store those assets in offline "cold" storage, (ii) obtain and deliver annual assurance reports regarding their custody, and (iii) adhere to best industry practices and protocols concerning safeguarding of crypto assets, which investment fund managers are also expected to consider in conducting their due diligence on custodians.  
• More Changes Likely to Come: The passage of these amendments and changes marks the completion of phase two of the CSA's three-part initiative for establishing a broader crypto regulatory framework. The third phase, as contemplated by the CSA, is set to involve further public consultation and, potentially, future amendments. Additional rulemaking adopted by the CSA will depend on the outcome of those consultations, ongoing developments in the crypto market, and global regulatory trends.

Investment fund managers, custodians and other market participants dealing in crypto assets in Canada should seek to familiarize themselves with the new restrictions and obligations created by these amendments and changes. For more information on the impact of these developments, or any other legal issues relating to crypto assets, please contact the authors of this article or a member of the Bennett Jones Fintech team. 

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