Canada Opens Stablecoin Consultation With Yield Ban and Strict Reserve Rules

Canada’s Department of Finance has started a 60-day public consultation on draft regulations for the Stablecoin Act, which became law earlier this year. The consultation closes on Dec. 23, and the framework is expected to take effect toward the end of 2027. The draft rules are needed to bring the act into force and set out what issuers must meet to register with the Bank of Canada. Non-bank issuers would have to hold reserves equal to the value of their fiat-pegged tokens in circulation, placed with qualified Canadian institutions such as banks, credit unions and trust companies. Customers must be able to swap their coins for regular currency within three business days, with redemption fees capped at 1%.

Stablecoin Yield Ban and Transaction Rewards

The proposal bars issuers from paying interest to encourage holding, including through third parties, but still allows rewards tied to transactions. Canadian banks have pushed for the ban, arguing that deposits could drain out of bank accounts and shrink lending capacity. A spokesperson for the Canadian Bankers Association said in June that the group firmly backs the act’s prohibition on both direct and indirect yield. Even so, some exchanges already pay rewards. Coinbase Canada received permission from the Ontario Securities Commission this year to offer yields on eligible tokens, as long as it warns customers about the risks and makes clear the funds are not covered by deposit insurance.

Canadian Banks and Tokenized Deposits Move Ahead

Late last month, the country’s six largest banks said they were exploring a Canadian dollar tokenized system to move money faster between traditional institutions. That followed a Sept. 10 statement from the banking regulator OSFI saying tokenized deposits are not legally distinct from traditional deposits. In May, Tetra Trust Company, Canada’s first regulated digital asset custodian, launched CADD, a Canadian dollar stablecoin approved by Alberta Treasury Board and Finance.