Canada is rapidly developing a regulatory framework for stablecoins, with potential details expected to be included in the upcoming federal budget on November 4. According to sources, officials from the Department of Finance Canada and other agencies have been in extensive discussions with industry stakeholders and regulators in recent weeks. These discussions have focused on addressing the challenges of classifying stablecoins, determining whether they should be considered securities or derivatives, and preventing capital flight to U.S. dollar-backed tokens.
The need for clear regulations has been voiced by industry leaders. John Ruffolo, co-chair of the Council of Canadian Innovators, warned that delays in establishing a clear framework could decrease demand for Canadian bonds, increase interest rates, and weaken the Bank of Canada's influence over money supply dynamics. He emphasized that without domestic options and regulatory clarity, Canadian capital may flow south. Former deputy governor of the Bank of Canada, Carolyn Wilkins, stated that Canada needs regulations that build "trust, security, stability and competitiveness" in the payments space.
The upcoming legislation is expected to cover several key areas, including licensing for issuers, clear reserve standards, and terms for redemption to improve consumer protection. The regulations are aimed at stablecoin creators and differ from previous guidelines issued by the Office of the Superintendent of Financial Institutions (OSFI).
This push for stablecoin regulation aligns with global interest in the sector. Europe's Markets in Crypto-Assets Regulation (MiCA) has already implemented rules for issuers, while countries in Asia, including Japan and Hong Kong, are also expediting their stablecoin policy work. Recently, the stablecoin sector approached $300 billion in supply, mainly dominated by U.S. dollar-pegged products from Tether and Circle.
The United States passed the GENIUS Act in July, which authorizes financial regulators to oversee stablecoin issuers and their reserve management practices, requiring issuers to comply with anti-money laundering and sanctions evasion regulations. This law has been largely welcomed by the crypto industry and defines compliant stablecoins as payment instruments. In Canada, regulators have indicated that stablecoins may be classified as securities or derivatives due to the lack of specific legislation. Some experts argue they should be regulated as payment instruments with strict oversight.
The Bank of Canada and OSFI have called for a national framework to address the regulatory gap. Ron Morrow, an executive director at the Bank of Canada, mentioned in September the necessity for federal stablecoin regulation. OSFI has also expressed concerns about the current lack of regulations in the country.
The domestic market for Canadian-dollar-pegged stablecoins is limited, with QCAD, issued by Toronto-based Stablecorp, being the most prominent example. This token is backed 1:1 by the Canadian dollar. U.S. dollar-pegged stablecoins, such as USDC, are available in Canada, particularly after support for Tether's USDt was discontinued in 2023.
