Canada’s proposed changes will take a harder stance on how banks and insurers operate in the crypto space.
The news follows Binance’s exit from the country as the crypto exchange said the regulation landscape was too challenging.
Peter Routledge, Superintendent of Financial Institutions, said: “Deposit-taking institutions and insurers need clarity on how to treat crypto-asset exposures when it comes to capital and liquidity.
“We look forward to giving them this clarity through these new guidelines that reflect industry input and international standards.”
The guidance is now open to public consultation until 20 September 2023. The proposed changes are said to come into effect at the beginning of 2025.
Canada’s new crypto proposals
Canada’s Office of the Superintendent of Financial Institutions said it wants to bring a comprehensive regulatory approach.
These new proposals are based on guidance from the Basel Committee on Banking Supervision. The committee are global standard setters for banks.
It set out tight regulation guidelines for cryptocurrencies in a 36-page report at the end of last year.
The committee proposed to classify cryptocurrencies as the riskiest possible asset for banks. It gave guidance that lenders should be limited in how much digital assets they hold. This included exposure to the largest cryptocurrencies BTC and ETH.
That would mean banks have to the same amount of capital for every BTC, ETH or other cryptocurrency that they hold. This would reduce the incentive to buy into and explore the digital asset market.
The guidance split cryptocurrencies into groups with some given more aggressive regulation compared to others. Softer guidelines were applied to tokenised version of traditional assets. Regulated stablecoins were also given more accessible regulation.
Canada would be joining the European Union and other jurisdictions by implementing the committee’s advice.
Binance’s exit from Canada
The cryptocurrency exchange Binance announced in May 2023 it was bowing out of Canada. It said the regulation was too challenging and announced it would cease its operations.
“Unfortunately, new guidance related to stablecoins and investor limits provided to crypto exchanges makes the Canada market no longer tenable for Binance at this time,” Binance tweeted.
“We put off this decision as long as we could to explore other reasonable avenues to protect our Canadian users, but it has become apparent that there are none.”
Canadian users received email guidance on how this would change their accounts.
Meanwhile, Binance said it was hopeful to eventually return to the Canada market. But users would need greater access to digital assets.
Coinbase praises Canada regulation
On the other hand, Coinbase has come out in support of Canada’s regulatory landscape. Nana Murugesan, VP international and business development, complimented the approach in an interview with CoinDesk.
He said the regulatory environment was favourable compared to the US, where there is a lack of clarity and enforcement.
This comes as Coinbase faces a lawsuit with the US’s Securities and Exchange Commission for operating as an unregistered securities exchange.
Canada’s 2022 interim advice
The newly announced guidelines are set to replace an interim approach that was unveiled by Canada in August 2022. These only came into effect in the second quarter of 2023.
It similarly put limits on the amount of crypto that banks and insurers could hold.
When announced last year, Routledge said: “Like other financial institutions around the world, some Canadian FRFIs have exposures to cryptoassets, and we have provided this interim approach to help ensure risks in this area are managed prudently and supervised according to the principle of ‘same activity, same risk, same regulation’.”