Canada opens stablecoin rules consultation, keeps ban on yield payouts

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Canada stablecoin rules consultation

Highlights

Canada's draft stablecoin framework requires non-bank issuers to fully back tokens with reserves at qualified institutions and prohibits interest payments to holders.
Issuers must redeem stablecoins for regular currency within three business days, with redemption fees capped at 1%, and the rules are projected to take effect by late 2027.
Banking sector pressure keeps yield ban in place as major banks consider tokenized deposit systems, and select platforms like Coinbase Canada currently offer yield with added disclosures.

Draft framework sets reserve and redemption standards

As reported by CoinDesk, citing the Canadian government, the draft regulations are needed to bring the Stablecoin Act into force and set the requirements for issuers to register with the Bank of Canada. The consultation runs until Dec. 23 and keeps a prohibition on stablecoin issuers paying interest, including through third parties, when the purpose is to encourage customers to hold the tokens.

The rules still allow transaction-based rewards. Under the proposal, non-bank issuers must hold reserves equal to the value of their circulating fiat-pegged tokens and keep those reserves with qualified Canadian financial institutions, including banks, credit unions and trust companies.

Customers must be able to redeem stablecoins for regular currency within three business days, while redemption fees are capped at 1%. The framework is expected to take effect toward the end of 2027.

Banking sector concerns shape market impact

The consultation arrives as Canada's banking industry pushes for limits on yield-bearing stablecoins, reflecting concerns also raised in the U.S. that depositors could shift funds out of bank accounts and reduce lending capacity in the traditional financial system. Natalle Begeron, a spokesperson for the Canadian Bankers Association, told The Logic in June that the group firmly supports the Stablecoin Act's explicit prohibition on yield, both direct and indirect.

Some parts of Canada's crypto market are already offering rewards to stablecoin holders. Coinbase Canada receives permission from the Ontario Securities Commission this year to offer yields on eligible tokens, provided it warns customers about the risks and makes clear the funds are not protected by deposit insurance.

The proposed rules are emerging alongside broader efforts to build regulated digital money infrastructure in Canada. Late last month, the country's six largest banks said they are exploring a Canadian-dollar tokenized system for faster transfers among traditional financial institutions, after the Office of the Superintendent of Financial Institutions said on Sept. 10 that tokenized deposits are not legally distinct from traditional deposits; Tetra Trust Company also rolled out its Alberta-approved Canadian-dollar stablecoin, CADD, in May.

Sovereign borrowing risks in a higher-rate environment were the focus of our earlier coverage, highlighting how persistent geopolitical shocks and elevated fiscal spending can erode fiscal headroom and make refinancing more expensive. We noted that emerging and frontier markets are especially exposed because interest costs take up a larger share of narrower revenue bases, while energy and food-price inflation driven by ongoing conflicts adds further strain to public finances and credit outlooks.

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