We are in the somewhat awkward position, as classical liberals who are neither big-C nor small-c conservatives, of having been asked to discuss classical liberalism as a faction of the conservative movement. We see why an alliance has been possible between classical liberals and conservatives, but we don’t think that compatibility can be counted on. It’s wrong to assume, as our country navigates its political realignment, that old alliances will—or should—hold. 

F.A. Hayek famously declared that he was not a conservative^{1Why I Am Not a Conservative https://www.cato.org/sites/cato.org/files/articles/hayek-why-i-am-not-conservative.pdf} and proceeded to offer a definition of conservatism^{2Hayek was not a conservative. Here’s why. https://www.econlib.org/hayek-was-not-a-conservative-heres-why/} distinct from liberalism. Hayek says—and we agree—that conservatives prefer what’s tried and true to solutions grounded in theory, that conservatives focus on getting to specific outcomes rather than rules that let people choose their own paths, and that from a liberal perspective conservatives are over-sceptical of open-ended change and not sceptical enough of authority. 

Conservatives, as Ben Woodfinden recently argued,^{3A Tory impulse and anti-Laurentian ideas drive Canadian conservatism https://thehub.ca/2022-08-17/ben-woodfinden-a-tory-impulse-and-anti-laurentian-ideas-drive-canadian-conservatism/} want to conserve what they see as valuable. Their policy goals come from where we’ve already been and what we’ve already done. Conservative policy goals don’t come from first principles about a never-realized ideal. 

Following McGill’s Jacob T. Levy, we argue that liberals, in contrast, are committed—regardless of the institutions from which they start—to robust due process and the rule of law, to religious liberty, to freedom of speech and association, to support for markets, and to democratic control of the legislative and executive branches of government. 

The term classical liberal is only used in North America. In much of the world, the term “liberal” is used to describe people who oppose institutionalized and especially government-backed power and want limited government intervention in people’s economic and personal lives. However, the emergence and growth in the 20th century of welfare liberalism—which advocates for more government regulation and redistribution—led to the adoption of terms like “classical liberal” and “libertarian” to differentiate. 

For a long time, Canadian conservatism could be described as a fusion of support for freer markets (like those espoused by classical liberals) with social conservatism. But in the 21st century, most obviously since 2016, the issues on which parties seek the support of voters have changed. 

The historian Stephen Davies has predicted that the new dividing line between parties will be nationalism against international cosmopolitanism. This new order is reflected in the emerging scepticism of both immigration and trade in parties of the right—an example is the reshoring strategy advocated by our friend Sean Speer. Hostility to internationalism is why the World Economic Forum has become a touchstone to some in Canadian politics. 

As voters and parties realign themselves to discover what brings people together under different political tents, it’s less obvious what Canadian conservatism will become. Classical liberals and conservatives did not support the policies on which we’ve agreed in the past for the same reasons, and we should not expect conservatives to respond the same way to changing political realities as we would. 

Sean Speer provided a conservative account of fusionism.^{4Canadian conservatism is powered by fusion https://thehub.ca/2022-08-12/sean-speer-canadian-conservatism-is-powered-by-fusion/} It includes, he says, a commitment by social conservatives not to interfere with most individual choices, even where conservatives hold strong beliefs. But their opposition to government control was not a concession to the classical liberals under the big conservative tent, but an acknowledgement that socially conservative views had fallen out of the mainstream. As more of their views became political non-starters, social conservatives’ policy goals moved to the back burner. 

The defining policy debate of the late twentieth century was a bigger picture one, of broadly free markets versus government-controlled economies. When Canadian conservatives in the Cold War took the side of markets, they allied themselves with liberals. Tools like privatization and trade were seen as important to opposing the power and influence of the Soviet Union by even market-skeptical conservatives. Again the alliance was politically convenient. 

Liberals shouldn’t count on hands-off social conservatism, nor on a conservatism that sees free markets in line with conservative goals. Political convenience is unreliable during political realignment. 

Liberals’ belief that individuals know what’s best for themselves leads us to believe that social change should come through persuasion rather than using the law. Commitment to persuasion takes sweeping social change by government edict off the table for liberals in a way that it’s not for progressives, who aim to enforce “progress” through legislation. The resulting gradualism is often confused by conservatives for a commitment to conservation. But liberals do not support standing athwart history yelling “Stop!”, either. Where progressives agree with liberals, classical liberals have no desire to stop progress, we just won’t force it through.

Classical liberalism emphasizes respect for individuals to make their own choices. Both progressives and conservatives have ideas of the good life towards which society ought to be moved. Sean Speer points to “the all-important question: freedom for what?” Liberals, and especially classical liberals, answer: that’s too important a question for us to decide for you, or for all of us to try to decide together.

With a political consensus around (mostly) free markets and (mostly) free social decisions, it was tempting for liberals to believe that the moral arc of history is one of liberation and progress. 

The political realignment has been a harsh wake-up call. Political and economic progress is more uneven and less certain than we previously believed. Debates we thought were settled have once again become live issues. 

We suspect that fusionism is dead. We’re not of one mind about how friendly conservatives have recently been to liberalism, but we agree that the disintegration of the old political centre is probably bad for liberalism, at least in the short term. Conservatives are increasingly focused on culture wars in a way that puts them at odds with classical liberals. 

We don’t know precisely where the new areas of agreement between conservatives and classical liberals will be, but we hope they will not disappear completely. Potentially fertile ground for cooperation could include changes to expand housing supply or educational choice. 

Conservatives (and progressives!) hoping to ally with liberals will need to keep in mind that old alliances, like old policy victories, can’t be taken for granted. Classical liberals, for our part, should embrace being accessible voters rather than part of the conservative, or anyone’s, political base.

The recent article by Ossowski and Clement^{1Canada’s shaky rules on cryptocurrencies have their root in Ontario https://thehub.ca/2022-08-08/yael-ossowski-and-david-clement-canadas-shaky-rules-on-cryptocurrencies-have-their-root-in-ontario/} mischaracterizes the Canadian regulatory environment for crypto assets in significant ways.

The Canadian Securities Administrators (CSA), the umbrella organization for all of Canada’s provincial and territorial securities regulators, of which the Ontario Securities Commission (OSC) is a part, has developed consistent viewpoints on crypto asset regulation.

For virtually all crypto asset trading platforms, the relationship between investors and platform operators is marked by a critical dependency on the operators for the selection of assets to trade, the manner in which those assets are marketed and sold, risk disclosure, and critically, the safety of the custodial arrangements that are in effect. Investors have only a contractual claim to the underlying crypto assets.

We all observed the risks in Canadian-based QuadrigaCX’s failure and the revelation of the stark reality that it was a Ponzi scheme wrapped in the jargon of innovation, resulting in well over $100 million in losses, predominantly to Canadians.^{2QuadrigaCX: A Review by Staff of the Ontario Securities Commission https://www.osc.ca/quadrigacxreport/} This was a formative event for our development of crypto regulation.

The definition of a security in Ontario is broad and technology-neutral. Canadian regulators have had ample precedents applying that definition to unregistered online trading platforms offering products such as commodity warehousing schemes, contracts for differences (CFDs), foreign exchange (forex) contracts, and binary options. We view the totality of the arrangements that platforms have with investors as securities; notwithstanding that over time, Bitcoin and Ether evolved in a manner that allowed them to be characterized as commodities. The result is that platforms are subject to dealer registration. These crypto contracts may also be derivatives since their value is dependent on the value of underlying interests, in the same way that a swap is a derivative because it is based on an index or on gold. Additionally, platforms have explicitly marketed crypto derivatives, essentially off-exchange futures contracts, which also fall unquestionably within the jurisdiction of CSA members.

Although regulatory efforts are underway in the U.S., American authorities have faced challenges in providing clarity because of the divided jurisdiction between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). In Canada, we have the challenge of coordinating multiple provincial and territorial securities regulators, but we all share unified jurisdiction over securities and derivatives.

Canadian securities regulators share the view that platforms offering these crypto assets to Canadians need to be subject to conduct and prudential regulation, adapted to how they conduct business but with a central commitment to investor protection. They need to be subject to scrutiny and ongoing examination like any other dealer. History has shown that sunshine is indeed the best disinfectant and its absence will lead to market failures, fraud, and cheating.

As partners with other financial services regulators and law enforcement bodies, we recognize that it is necessary to protect against criminal activity, notably money laundering and terrorist financing. As market regulators, we have a shared commitment to combating market manipulation, improper promotional activity, and insider trading.

At the OSC, we are of the view that the Investment Industry Regulatory Organization of Canada (IIROC), the investment dealer self-regulatory organization that governs conduct, prudential regulation, and market surveillance, is the right destination for most of these firms as they typically deal with retail investors. Direct regulation by the OSC is a temporary measure on the way to IIROC membership. It is not sound public policy to exclude platforms that deal in the most speculative assets from IIROC oversight, yet require it for dealers that are involved in capital formation for businesses that develop our economy and can support stable retirement savings.

Implicit in the op-ed is the question of how we came to have a two-tier system where large global players are unregistered while we have Canadian-based regulated firms. The answer is that global firms were established in crypto safe havens or where there was regulatory ambiguity and conducted internet-based business initially largely without permission from either their home countries or the jurisdictions where targeted investors resided. The fact that the comprehensive U.S. regulation has been delayed by definitional and jurisdictional questions has allowed this situation to flourish for far too long.

We had a compelling interest in regulating home-grown players who were likely to garner an increasing proportion of Canadian assets. We wanted to avoid Canada being a base of operations for fraud and possible systemic risk arising from home-grown firms. As many in the now-established crypto world agree, regulation is a critical key to trust and adoption. We are working to ensure that the Canadian system of regulated entities deserves the confidence that follows from regulated status. Our hope continues to be that Canadians will turn to firms that have submitted to Canadian regulation.

Global players will have to decide whether accessing Canadian investors in accordance with Canadian law is worth the compliance effort. Established firms seeking credibility will not wish to be banned in Canada or be subject to enforcement and other sanctions. They want to be in good standing in established securities markets. We already have had successful enforcement actions against global players who feel differently.

The authors point out that efforts to block internet access by Canadians can be circumvented by VPNs. This is true. However, if we see any encouragement of this or other actions to attract Ontario investors after platforms agree to block access, we will treat such misconduct as equivalent to recidivist violations and seek the most serious consequences. Compliance systems are improving rapidly, and we will demand vigilance. The solution for the residual risk will ultimately lie in increased international regulatory cooperation.

The authors also point out variations in the treatment of some global platforms where Canadians can transact from one province and not another. That arose from our decision in Ontario to set a deadline for these platforms to embark on the road to registration. We didn’t want to give them an incentive to drag their feet. If they missed the deadline or said they didn’t want to do business in Ontario, they had to stop offering services in Ontario or face enforcement. Other provinces didn’t impose the same deadline, and the result was different. It remains a challenge to bar non-compliant firms from offering services in Canada, but we are making progress.

This week CSA members have accepted pre-registration undertakings from two firms, including a large global firm, to help ensure that fundamental investor protections are in place while the firms work through the registration process with us. All unregistered firms operating in Canada will be expected to provide these undertakings while their applications are being processed.

The authors incorrectly attribute the differences in approach among CSA jurisdictions to the absence of a two-way passport with Ontario. That is false. There isn’t and never has been a two-way passport among CSA jurisdictions for the registration of restricted dealers such as crypto asset trading platforms, whose novel businesses require tailored terms and conditions. All jurisdictions weigh in so that we can benefit from the best thinking before new business models can be employed in the Canadian marketplace. It can be challenging for regulators and firms alike to go through this collaborative process, but it is one that respects Canadian federalism. In this context, a two-way passport is a red herring, and the authors’ claims reflect a fundamental misunderstanding of how our regulatory regime operates.

The role of securities regulators is not to choose economic winners or losers but to create an enabling and competitive environment in which investors, innovators, and entrepreneurs have the confidence to participate.

We continue to prioritize investor education to help equip investors with the appropriate knowledge of this sector so they can better understand the potential risks involved.

The Canadian securities regulatory approach to crypto assets has been principled, pragmatic, and measured, with a view to protecting investors and creating a level playing field that facilitates competition and innovation in the crypto sector.