A sign advertises a Bitcoin ATM at a shop in Halifax in February, 2020.Andrew Vaughan/The Canadian Press
Canada’s banking regulator has unveiled its rules for banks to manage their exposure to cryptocurrency as interest in crypto assets surges in the country.
The Office of the Superintendent of Financial Institutions (OSFI), as part of its quarterly report Thursday, revealed the final guidelines on crypto assets, as well as a consultation on capital adequacy requirements as U.S. President Donald Trump is expected to ease banking regulations.
The regulator has been reviewing how Canada’s banks manage risks associated with crypto assets – including trading platforms and cryptocurrency such as Bitcoin – in their client portfolios. The banks will have to consider crypto that sits directly on their balance sheets, as well as asset exposures among their customers.
While the regulator considers the current risk to be relatively low, activity is picking up quickly, according to OSFI assistant superintendent and chief strategy and risk officer Angie Radiskovic.
The percentage of Canadians who own Bitcoin jumped to 13 per cent in 2021 from 5 per cent in 2018, largely among men, according to a Bank of Canada report published in December.
“We’re in a market where crypto is starting to pick up dramatically,” Ms. Radiskovic said during a conference call with reporters.
OSFI has created two different approaches for banks to assess how crypto asset risks affect their capital and liquidity levels – measures that help maintain a bank’s stability in the case of an economic downturn or other financial crisis.
For banks with limited vulnerability, the lenders will have to deduct all crypto asset exposures from their common equity tier 1 (CET1) capital – a key metric that assesses a lender’s ability to absorb losses. The measure requires banks to set aside billions in excess funds as a cushion against an economic slowdown.
Lenders with greater exposure will need to categorize crypto into different categories, depending on the type of asset.
At most Canadian financial institutions, “direct and indirect holdings of Canadian institutions of crypto are very minimal,” according to Amar Munipalle, OSFI executive director of the risk advisory hub.
Most of the crypto activity at the banks involves financing transactions for client-related activities, Mr. Munipalle said.
The final guidelines come into effect in early 2026. OSFI is considering publishing regulatory data on crypto asset exposure.
OSFI’s consultation on capital adequacy requirements addresses whether a financial institution has enough funds to cover deposits in a situation where it has losses in its loans or investments.
Clients’ deposits could be at risk if banks do not have enough capital to absorb losses. That could trigger financial instability across the economy, such as the global financial crisis in 2008.
Last week, OSFI indefinitely paused future increases to capital levels, which was part of the global Basel III accords to bolster financial stability at banks.
Other countries have been slow to implement the changes, and critics have argued that Canada’s quick adoption of the new rules risks making the country’s banks less competitive with global peers.
Meanwhile, Mr. Trump is expected to abandon certain reforms and rules aimed at reinforcing the stability of the financial sector. The dramatic shift in tone from the U.S. administration was factored into OSFI’s decision to delay the capital increases.
“It has influenced our decision,” Mr. Munipalle said in response to a reporter’s question.
“When we believe there is some convergence around larger jurisdictions as to where the implementation is going, and when we can fully assess the impact of those implementations on our banks – several of whom are global players – that’s when we would decide to go back to our stated transition path.”