Canada Proposes New Regulations for Stablecoins

Overview

• Draft regulations for stablecoins in Canada were unveiled on October 24, initiating a 60-day public comment period.
• The rules aim for implementation by fall 2027, mandating issuers to maintain one-to-one reserves and capping redemption fees at 1%.
• The Bank of Canada will oversee compliance, with penalties reaching up to C$10 million for serious infractions.

Canada has introduced draft regulations aimed at stabilizing the stablecoin market, which allows crypto tokens to maintain a consistent value, typically pegged to the U.S. dollar. Published in the Canada Gazette, these rules require stablecoin issuers to back every token with actual reserves and ensure timely redemption.

Under the proposed framework, issuers must hold reserves in cash, government securities with maturities under three months, and certain money market funds, all kept with Canadian custodians. Token holders will be able to redeem their coins within three business days for fees not exceeding 1%.

Additionally, the proposal prohibits issuers from offering interest on the coins, a move designed to differentiate stablecoins from traditional financial products like bank deposits. Any mechanism that allows users to earn yield from holding stablecoins would be considered indirect payment and thus forbidden.

The regulations also stipulate that issuers cannot market their products as bank deposits or claim any form of deposit insurance. Complaints from users must be acknowledged within seven days and resolved in 30 days.

These new rules come in the context of broader discussions about stablecoin regulations globally. The U.S. has enacted similar legislation, the GENIUS Act, which also restricts interest payments on stablecoins. The Canadian rules are part of a larger effort to enhance the safety and transparency of financial transactions, particularly in cross-border payments.

Issuers who violate the new rules could face penalties ranging from C$1 million for serious breaches to C$10 million for more severe offenses, such as inadequate reserve holdings. The Bank of Canada will register and oversee these issuers, which are expected to number around five, along with approximately 30 other payment service providers.

The public is invited to submit comments on the proposal until December 23, with the goal of finalizing the regulations ahead of their anticipated rollout in 2027.