The British Columbia Securities Commission (BCSC) has initiated an investigation into LiquiTrade Limited for operating its crypto exchange, Latoken, without proper licensing in British Columbia.
The company, which is incorporated in the Cayman Islands, has been operating since 2020 and is now under scrutiny for potentially violating local securities laws by offering trading services in popular digital assets such as Bitcoin and Ethereum without registration under the Securities Act.
Unauthorized Crypto trading platform
According to a recent report from the BCSC, LiquiTrade has been allowing users to engage in what appears to be crypto asset trading. However, the reality uncovered by BCSC investigators suggests that users were merely acquiring rights or “representations” of these digital assets instead of trading actual cryptocurrencies.
This distinction raises concerns about the legitimacy of the trading activities conducted on the Latoken platform. Peter Chow-White, a blockchain expert and professor at Simon University, commented on the issue, stating that the platform offered a simulated form of trading rather than actual cryptocurrency exchanges.
The BCSC’s investigation revealed that users could not exercise control over their digital assets once an account was created and trading commenced. The only way to conduct withdrawals or execute trades with other individuals was through the processes and systems set up by LiquiTrade, which severely limited user autonomy and raised red flags with the regulators.
Global scrutiny and legal challenges
This is not the first time LiquiTrade has faced regulatory challenges. In 2022, Germany’s Federal Financial Supervisory Authority (BaFin) investigated the company’s activities. The inquiry concluded that LiquiTrade had been offering illegal banking and financial services in Germany, leading to increased scrutiny of its operations in other jurisdictions.
The recent hearing in British Columbia proceeded without participation from LiquiTrade, which chose not to attend. Nonetheless, the BCSC has informed the company of the ongoing legal processes and is currently deliberating on potential consequences, ranging from hefty fines to a complete operational ban in the region.
Marketing misrepresentations
Compounding the company’s troubles is its promotional strategy. LiquiTrade has advertised its Latoken platform as a “regulated exchange” and a “top-40 most trusted exchange,” now questionable assertions given the regulatory findings. A blog post from January 2022 highlighted the platform’s alleged reach and success, claiming over 1.5 million users, over a million downloads on Google Play, and over $300 million in daily trading volume.
These figures and claims are under examination as the BCSC continues its comprehensive review of LiquiTrade’s business practices and compliance with local laws. As the BCSC finalizes its decisions regarding the fate of LiquiTrade and its Latoken platform, the crypto community and investors are reminded of the importance of verifying exchanges’ regulatory status before engaging in trading activities. This case is a critical reminder of the regulatory obligations and challenges of operating a crypto exchange, especially in a rapidly evolving digital asset landscape.