• Canada’s finance regulator proposed capital requirements for crypto assets in order to reduce risk and promote transparency.
• The rules are largely focused on two sectors, tokenized traditional assets and stablecoins, and unsupported cryptocurrencies.
• Banks must have an exposure cap of no more than 1% for unsupported crypto assets while tokenized corporate bonds kept in the banking books will be subject to the same risk weight as a non-tokenized corporate bond maintained in the banking book.
Canada Proposes Crypto Exposure Regulations
Canada’s Office of the Superintendent of Financial Institutions (OSFI) has proposed new capital regulations for banks and insurers dealing with cryptocurrencies. The new rules aim to reduce risk and promote transparency by providing streamlined guidelines on how institutions should manage their exposure to crypto-assets.
Capital Requirements for Crypto Assets
The proposed regulations provide an illustrative approach for banks to balance the risk of tokenized versus conventional assets. Under the draft rules, a tokenized corporate bond kept in the banking book will be subject to the same risk weight as a non-tokenized corporate bond maintained in the banking book. Banks must also adhere to an exposure cap of no more than 1% for unsupported crypto assets.
Alignment with Basel Committee Suggestions
The specifics of these guidelines were drafted as an update to suggestions made by the Basel Committee on Banking Supervision in December 2022 regarding crypto asset exposures. These proposals seek to align Canadian regulation with global standards put forth by global organizations such as @BIS_org .
The draft outlines exceptions that recognize different market liquidity characteristics between tokenized and non-tokenized assets. Additionally, OSFI is inviting feedback from stakeholders before making any final decisions on these regulations or their implementation timeline.
As regulation of cryptocurrencies intensifies around the world, Canada is stepping up its efforts towards a comprehensive approach that reduces risks associated with crypto asset exposures while promoting transparency among financial institutions dealing with them.