Canada Tightens Crypto Custody Rules to Protect Investors After QuadrigaCX Collapse

Canada’s top investment industry regulator has introduced stricter digital asset custody rules in an effort to respond faster to crypto failures like the collapse of QuadrigaCX, one of the country’s most infamous cryptocurrency scandals. The Canadian Investment Regulatory Organization (CIRO) announced its new Digital Asset Custody Framework, which aims to strengthen investor protection while still allowing room for innovation in the rapidly evolving crypto market.

The framework is designed to help CIRO react more quickly to key risks associated with digital assets, including hacking, fraud, weak governance structures and insolvencies. These risks have previously left investors exposed, particularly during high-profile exchange failures. According to CIRO, many of the new expectations were developed in close consultation with crypto-asset trading platforms and their custodians, and largely reflect practices that are already being implemented across the industry. Transition requirements will be applied on a case-by-case basis to avoid unnecessary disruption.

CIRO emphasized that the updated custody rules strike a balance between flexibility and risk management. By setting clearer standards, the regulator aims to support innovation in digital assets while ensuring strong safeguards for investors. A central element of the framework is a tiered, risk-based approach that allows firms to diversify custody arrangements while maintaining robust oversight and controls.

The collapse of QuadrigaCX in 2019 continues to influence Canada’s regulatory stance on crypto. Approximately $123 million in customer funds remain unaccounted for following the exchange’s failure. After the death of CEO Gerald Cotten, investigations revealed significant mismanagement, with findings later indicating that co-founder Michael Patryn was allegedly deeply involved in operations during periods when funds were misappropriated. The case highlighted custody as one of the most critical risk points in the crypto ecosystem.

CIRO stated it will monitor emerging custody and cybersecurity threats, repeated compliance issues and shifts in market practices as early warning signs that the framework may need further updates. Rather than waiting for another major failure, the regulator plans to proactively adjust expectations as risks evolve.

Canada has taken a cautious, investor-focused approach to crypto regulation, bringing trading platforms under existing securities rules and emphasizing registration, custody and disclosure. Recent federal initiatives on stablecoins and an expanded oversight role for the Bank of Canada suggest a gradual move toward a broader national framework for digital assets.