In its budget, the federal government said the Bank of Canada would administer the planned new legislation for stablecoins.Keito Newman/The Globe and Mail
The federal government’s swift movement toward regulating stablecoins signals a growing recognition that this class of crypto assets is key to monetary sovereignty, according to digital currency advocates and issuers.
Ottawa released a long-awaited new framework for stablecoins on Monday. The proposed regulation would apply to a type of crypto cash that requires issuers to hold reserves such as fiat currency.
The 32-page document expanded on rules previously announced in the federal budget earlier this month, which gave Canada’s central bank the reins to administer the new legislation. The spending plan narrowly passed Monday after a crucial confidence vote.
The move was long-awaited by issuers and proponents of the digital asset, who say the legislation would be critical for Canada to catch up in the race to modernize payments. However, it fell short of explicitly designating stablecoins as payment instruments.
BoC’s Macklem lays out high-level vision for stablecoin regulation
Lori Stein, co-lead of the fintech group at McCarthy Tétrault LLP, said the new rules put “meat on the bones” of the earlier framework, establishing clear laws and oversight rules for issuers.
Notably, the new regulations state that non-bank stablecoin issuers wouldn’t be permitted to give out interest or yield in any shape or form to customers.
The document also says the Bank of Canada would be able to impose administrative monetary penalties and initiate a national security review if an issuer poses risks.
It’s a signal that Ottawa recognizes that this kind of digital asset “can really have an impact on Canada and our economy,” said Ms. Stein.
The developments to Canadian stablecoin legislation are in direct response to U.S. President Donald Trump signing the Genius Act into law in July.
The U.S. legislation clearly defined and set out rules for policing stablecoins, sparking worry in this country that the lack of a national framework or a Canadian-dollar-backed stablecoin would drive capital out of the country and south of the border.
“We are still leaking our Canadian deposits into a foreign system,” said Bay Street financier John Ruffolo, founder and managing partner of Maverix Private Equity, who praised Ottawa’s speed in moving to stem some of the outflow. “This document says: ‘It’s game on, Canada.’”
Rita Trichur: Financial crime loopholes in U.S. stablecoin law offer a cautionary tale for Canada
Right now, digital currencies have largely been treated as securities, which are under the jurisdiction of provinces and territories, and involve administrative and transactional barriers. In an ideal scenario for issuers and advocates, stablecoins would be designated as payment instruments, letting users send them as quickly as they can text, while avoiding foreign transaction fees. As payment instruments, stablecoins would be federally regulated.
“It’s definitely not a slam dunk,” Mr. Ruffolo said. “Securities, it’s a provincial statute, so it’s a little unclear how each of the provinces’ regulatory authorities will adopt the federal act, if they so choose to.”
But he’s confident that the details and clear definition of stablecoins as a payment instrument will likely be worked out later. “They chose speed, notifying that we’re serious about doing this versus waiting for all the details,” he said.
For Mr. Ruffolo, the core of the issue is sovereignty. While the new rules are a step in the right direction, he said Canada cannot control its monetary system if stablecoins used by Canadians run on foreign blockchains.
“You gotta own the rail … if you don’t own the rails underneath, then you’re running on somebody else’s rails,” Mr. Ruffolo said.
However, Coinbase Canada chief executive Lucas Matheson said the technology needed to support stablecoins already exists. “We don’t need to invent new technology,” he said, adding that Monday’s framework was thoughtful, constructive and comparable to the Genius Act in the U.S.
The Canadian legislation would cover private issuers for now. Mr. Ruffolo hopes to see bank-issued instruments come later through changes to the Bank Act, with new rules around the mechanics of tokenized deposits and stablecoins.
For now, the government’s message is that Canada wants competition, said Mr. Ruffolo. He added that the new rules would allow private issuers to compete with banks, and banks would get their regulatory framework later.