• No new trades will be allowed for Canadian transactions starting June 2
  • Paxos was ordered to stop issuing BUSD by a New York regulator in February
  • Canada announced a tightening on crypto firms earlier this year.

Fintech blockchain firm Paxos Trust Company is leaving Canada amid regulatory tightening in the country. The New York-based blockchain solutions provider said it will continue to assess its readiness for a potential re-entry into the Canadian market.

"Beginning June 2nd, you will no longer be able to transact from your Paxos account, aside from withdrawing your funds," the company said in a statement Tuesday.

For accounts with no funds, Paxos will automatically close them on May 9. The company also urged users to withdraw all their balances at the earliest possible time.

Funds can still be withdrawn starting June 2, but no new trades will be allowed for Canadian transactions. On whether it will accept Canadian users in the future, Paxos said it will "continue to assess" the possibility of re-entering the market "in cooperation with the OSC (Ontario Securities Commission) at a future date."

Paxos also noted that users who will miss the deadline for withdrawing funds will still be able to access their accounts, but longer waiting periods for the withdrawal process should be expected.

Paxos, which raised $142 million in a funding round led by PayPal Ventures and others in 2020, was ordered by the New York state's financial regulator in February to stop issuing the digital currency Binance USD (BUSD), a stablecoin associated with Binance.

"If the SEC (Securities and Exchange Commission) charges Paxos, any other issuer of stablecoins should register or prepare for a court fight with the SEC," Renato Mariotti, a partner at law firm BCLP, told CNBC at the time.

The SEC has not made any moves yet regarding the matter. However, Paxos previously said it received a notice from the SEC that the regulator was considering the possible action that would allege that BUSD was a security.

If the SEC moves forward with the said recommendation, Paxos said it suggests that the derivatives exchange should have registered under federal securities law.

Meanwhile, a few other cryptocurrency companies have announced plans to exit the country following the government's move to unveil new crypto-related regulations recently.

Earlier this month, derivatives exchange dYdX said it will begin restricting transactions from Canadian accounts. The company said new Canadian users "will not be able to onboard to the exchange" and existing accounts "will be moved to close-only mode."

In relation to its "winding down" of business in Canada, the company said Canadian users will continue to be able to withdraw funds at any time but the close-only mode will be implemented starting Friday.

Last month, crypto exchange OKX informed Canadian users through email of its Canada exit, citing "new regulations."

"Your funds will remain safe in your account until you withdraw them. You will be able to withdraw dollars to your linked bank account and cryptocurrency to your self-custody wallet or your cryptocurrency on another exchange," OKX reportedly said. The deadline for fiat or token withdrawals has been set for June 22.

The exits came after the Canadian Securities Administrators (CSA) published a notice in February that detailed its expectations from crypto asset trading platforms (CTPs).

"We remind investors that trading in crypto assets comes with elevated levels of risk that may not be suitable for many investors, in particular retail investors," the CSA said in its 15-page notice.

The agency also reiterated that while CTPs operating in the country and even those who are seeking to operate in Canada are required to register with securities regulators, "registration cannot eliminate all risks associated with CTPs."

The CSA said in a press release that CTPs unwilling or unable to provide "enhanced pre-registration undertaking" within 30 days from the notice's release should "take appropriate action to off-board existing Canadian users and impose restrictions to prevent Canadian users from accessing its products or services."

The pre-registration process requires crypto exchanges and other companies to abide by custody rules, which include banning the sale of stablecoins without permission from the regulatory agency, according to Coin Desk.

Canada treats cryptocurrencies and other digital assets as securities, which places them under various securities laws, as per Coin Telegraph. All of Canada's securities regulators are represented by the CSA, and crypto-related regulations are enacted on a provincial and territorial level.

Illustration shows representation of cryptocurrency Bitcoin plunge into water
Representative image of cryptocurrency Bitcoin. Reuters