Canada proposes new capital rules for crypto holdings

Canada’s financial watchdog is proposing changes to its capital and liquidity approach to crypto assets, according to an announcement on July 26. According to the Office of the Superintendent of Financial Institutions (OSFI), the proposed rules will simplify institutions’ approach to perceived crypto risks, defining four categories of crypto assets and their capital treatment.

OSFI is opening public consultations on two draft guidelines until Sept. 20. One of the guidelines affects federally regulated deposit-taking institutions, such as banks and credit unions, while another guideline addresses the regulatory capital treatment of crypto-asset exposures for insurers.

“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,” said OSFI superintendent Peter Routledge.

In line with @BIS_org’s new banking standards for #crypto-asset exposures, we’ve drafted guidance tailored for Canada.

Share your feedback on proposed changes to our capital and liquidity approach to #cryptoassets. https://t.co/M45FFFbUtZ pic.twitter.com/xbrgsk0XKO

— Superintendent of Financial Institutions (@OSFICanada) July 26, 2023

The new rules seek to reflect an “evolving risk environment,” notes the regulator. The rules also address changes introduced by the Basel Committee in December 2022 outlining new banking standards for crypto assets exposures with implementation set for Jan. 1, 2025. The Basel Committee’s new standards include rules related to tokenized traditional assets, stablecoins and unbacked crypto assets.

According to OSFI, its drafts incorporate the new international banking standards, while the insurance guidelines are adjusted to meet the specific needs of the local insurance industry.

The new guidelines will also replace an existing advisory published in August 2022 that defined and categorized crypto-asset exposure and its potential risks for financial institutions.

Canada’s evolving regulatory landscape comes amid growing concerns about the ramifications of digital assets on banking systems worldwide. In the United States, crypto-friendly banks such as Silvergate and Signature Bank shut down operations amid liquidity issues stemming from crypto-related events in 2022.

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