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What You Need to Know About Cryptocurrencies

Cryptocurrencies are an evolving financial innovation that BC Financial Services Authority (“BCFSA”) has a close eye on as a part of our role in monitoring risk in the financial services sectors.

As BCFSA endeavors to safeguard confidence and stability in B.C.’s financial services sector, it is important for licensees to understand cryptocurrencies and how you might encounter them in a real estate transaction.

Know the Risks: Holding a Cryptocurrency Deposit in Trust Requires a Third Party

In a typical real estate transaction, funds are held in a trust account where they are protected, should the deal collapse.

Because brokerages are unable to hold cryptocurrency deposits in trust for a real estate transaction, the buyer and seller would have to negotiate for a third party to hold the deposit. This introduces an increased risk in the transaction.

Funds held outside a brokerage trust account are not subject to the protections provided in the Real Estate Services Act (“RESA”) and can easily be misappropriated by a third party despite what is provided in the contract. If a deal using cryptocurrency were to collapse, your client may have to sue the other party in court to recover the funds.

Because of the very high level of risk, BCFSA strongly recommends seeking legal advice for anyone considering the use of cryptocurrency in a real estate transaction.

Licensees Are Required to Protect Their Clients’ Best Interests

All licensees have a duty to act in their client’s best interests. Upholding this standard as a licensee helps to maintain confidence in the real estate profession, the industry, and in the financial services sector as a whole.

Using cryptocurrency in a real estate transaction can introduce additional risk to your clients and licensees should take extra steps to access, provide, and document clear advice if a client is considering the use of cryptocurrency in a real estate transaction.

Cryptocurrency is a decentralized digital or virtual currency. Unlike traditional currencies, it is not managed and controlled by a central authority, such as a government or bank.

While some cryptocurrencies can be traded for legal tender and others can only be used directly in a purchase where a company allows it, cryptocurrencies themselves are not legal tender and there are limits to how they can be used in a transaction.

Know Your FINTRAC Reporting Requirements

Because the source of a payment in cryptocurrency may not be discoverable, as in a cash transaction, licensees should take the time to know the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) reporting requirements.

New guidance on Large Virtual Currency Transaction Reporting requirements came into effect June 1, 2021, under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

As a licensee, it is your duty to always act in the public interest. That includes doing your part to prevent money laundering and terrorist financing by meeting your FINTRAC reporting requirements.

See further guidance on knowing your client, reporting, and record keeping for licensees to understand your obligations in the FINTRAC Guidance for Real estate brokers or sales representatives, and real estate developers section of the Government of Canada website.

Cryptocurrencies Continue to Evolve

Cryptocurrencies are a variation of currency itself and innovations of cryptocurrencies continue. BCFSA is constantly monitoring these developments and how they interact with the financial services sector to impact risk to the public.

While cryptocurrency, such as Bitcoin, has a reputation for volatility, stablecoin is a new kind of cryptocurrency backed by reserve assets to increase stability while maintaining the privacy and security of cryptocurrency payments and processing.

The circumstances around cryptocurrencies are also evolving: new businesses continue to emerge promising to help you buy real estate using cryptocurrencies; securities regulators are now regulating the platforms that trade cryptocurrencies.

Still, these currencies are currently unregulated and come with added risk. Real estate transactions using cryptocurrency of any kind should be approached cautiously with the help of independent legal advice.

The Bottom Line: Exercise Caution

Licensees have a duty to protect the best interests of their clients and the public. In any real estate transaction, licensees should take the time to understand the risks and inform themselves and their clients before proceeding.