Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), has proposed changes to its capital and liquidity approach to crypto assets. The proposed rules aim to simplify how institutions handle perceived risks associated with cryptocurrencies by defining four categories of crypto assets and their capital treatment. To gather input from the public, OSFI is conducting public consultations on two draft guidelines until September 20. One guideline focuses on federally regulated deposit-taking institutions, such as banks and credit unions, while the other addresses the regulatory capital treatment of crypto-asset exposures for insurers.
The superintendent of OSFI, Peter Routledge, emphasized the need for clarity regarding the treatment of crypto-asset exposures for deposit-taking institutions and insurers in terms of capital and liquidity. He stated that these new guidelines, which consider industry input and international standards, will provide the necessary clarity.
OSFI’s proposed rules are in line with the new banking standards for crypto-asset exposures introduced by the Basel Committee in December 2022. These new standards, scheduled for implementation on January 1, 2025, encompass rules related to tokenized traditional assets, stablecoins, and unbacked crypto assets. OSFI’s drafts incorporate these international banking standards, while the guidelines for insurers are tailored to meet the specific needs of the local insurance industry.
The forthcoming guidelines will replace an existing advisory published in August 2022, which defined and categorized crypto-asset exposure and its potential risks for financial institutions. The aim of these new guidelines is to adapt to the evolving risk environment and ensure that Canada’s regulatory framework keeps pace with the fast-changing crypto landscape.
Canada’s decision to update its regulations comes at a time when concerns are growing about the impact of digital assets on banking systems globally. In the United States, banks that were supportive of cryptocurrencies, such as Silvergate and Signature Bank, faced liquidity issues and had to curtail their operations in 2022 due to events related to cryptocurrencies.
By seeking public consultation and incorporating international standards, Canada is taking proactive steps to address the risks associated with crypto assets and ensure that its financial institutions have a clear framework for capital and liquidity treatment. These proposed changes will provide greater clarity and stability to the crypto industry within Canada, fostering its growth while mitigating potential risks.