Introduction
The Canadian government has initiated a two-month consultation period focused on prospective regulations for stablecoins, aiming to maintain its prohibition on issuer-funded yields while mandating that reserves be held with certified Canadian financial institutions. The Department of Finance revealed a draft of these regulations in the Canada Gazette on October 24th, with comments accepted until December 23, 2026.
Proposed Guidelines
Under the proposed guidelines, any issuer-funded incentive structures that reward users for larger holdings or extended holding times are not permitted; instead, only rewards linked to transactional activity are allowed. The regulations dictate that stablecoins must be fully backed at a 1:1 ratio by assets held with custodians located in Canada and impose a limit on redemption fees at no more than 1%. Additionally, any redemption requests must be settled within three business days, though there is no stipulation for a minimum redemption amount.
Industry Response
The Canadian Web3 Council has advocated for a more lenient approach to yield regulations, as highlighted in their pre-budget suggestion submitted on September 8. They expressed interest in exploring allowances for rewards tied to usage, merchant discounts, and loyalty schemes, urging the government to specify that third-party incentives based on transaction volume should not fall under the yield restrictions.
The industry group also pointed out that some existing payment structures, such as those offered by major card networks, typically include customer rewards and called for regulations that would enable similar activity-based incentive systems. Regarding asset custody, they recommended establishing isolated and bankruptcy-remote reserves, ensuring that custody is managed by Canadian entities for stablecoins issued domestically. For stablecoins issued outside of Canada that are utilized by Canadians, they suggested establishing reciprocal regulations with other jurisdictions.
Regulatory Framework
According to the Finance Department’s outline, the forthcoming regulations will apply to both domestic and international issuers of fiat-backed stablecoins that are available to Canadian consumers. Furthermore, the department emphasizes that there will be no differentiation between Canadian dollar-denominated tokens and those referencing currencies from abroad. To safeguard reserves, the rules specify that assets must be segregated from both the issuer’s and custodian’s properties, ensuring that in cases of insolvency, creditors unrelated to stablecoin holders cannot access those funds.
Additional registration requirements will encompass an issuer’s corporate structure, financial stability, technology related to the token, and adherence to the Stablecoin Act. Entities will also need to provide ongoing disclosures, including financial statements verified by accountants and legal backing. The Bank of Canada is set to handle the registration of issuers, monitor compliance, and oversee risks related to issuance and redemption, all while enforcing relevant regulations. This task is seen as an extension of its current payments oversight responsibilities, with the Finance Department leading the regulatory development and the Bank administering the issuer guidelines. Publication in the Canada Gazette marks a significant step in this regulatory process.
Implementation Costs
Furthermore, as part of its broader stablecoin regulatory framework, Canada has earmarked CAD 10 million to manage implementation costs over the next two years, which is slated to begin in 2026. The expected annual expenditure of CAD 5 million will be recouped from regulated issuers.
International Context
In the United States, the Office of the Comptroller of the Currency (OCC) has finished drafting its GENIUS Act regulations, set to take effect on January 18, 2027. These rules also maintain a ban on yields associated with holding stablecoins, yet differentiate between rewards based on transactions and those that qualify as interest or yield. Previous reward programs are not automatically exempt under the final rule, emphasizing a need for compliance validation.
Technological Developments
On a technological front, Canadian banks are actively working on digital payment systems as they progress towards a more robust stablecoin infrastructure. Notable banks participating in a collaborative project for tokenized deposits include the Bank of Montreal, CIBC, and Scotiabank, with the initial phase involving the transfer of tokenized Canadian-dollar deposits. While they plan to extend this initiative to integrate with various digital asset platforms, a specific timeline for public launch has not been clarified. Each tokenized deposit will remain an obligation of the originating bank, affirming that the digital representation of deposits retains their legal definitions.
Additionally, a Canadian-dollar stablecoin known as CADD has recently secured institutional custody under Anchorage Digital, with backing provided by Canadian dollars maintained by a licensed trust company, following approval from Alberta regulators earlier this year.
