• Canada’s finance regulator proposed capital requirements for crypto assets to reduce risk and promote transparency.
• The proposed rules provide a streamlined, comprehensive approach, with provisions for an institution’s exposure to crypto-assets.
• The guidelines are in line with new banking standards set by the Basel Committee on Banking Supervision.
Canada’s Financial Regulator Proposes Rules for Crypto Exposure
Canada’s Office of the Superintendent of Financial Institutions (OSFI) has proposed new capital regulations for banks and insurers dealing with cryptocurrencies. The regulations are aimed at reducing risk and promoting transparency in the crypto space.
The proposed guidelines provide a streamlined, comprehensive approach, with provisions for an institution’s exposure to crypto-assets. Classification determinations require ongoing assessment, and crypto-assets should be divided into two groups – tokenized traditional assets/stablecoins and unsupported cryptocurrencies. Banks are required to have an exposure cap of no more than 1% for unsupported crypto-assets.
Aligning with Basel Committee Suggestions
The specifics for guidelines on crypto-asset exposure were drafted as an update to suggestions made by the Basel Committee on Banking Supervision in December 2022. These include providing additional guidance to banks regarding their exposures to cryptocurrency trading platforms, as well as providing clarity around how tokenized assets should be treated from a prudential perspective compared to non-tokenized assets.
The way a bank treats its crypto asset exposures depends on the prudential classification of crypto assets. Per OSFI, tokenized traditional assets/stablecoins should be subject to the same risk weight as non-tokenized traditional assets maintained in the banking book; however there may be exceptions depending on liquidity characteristics of tokenized versus conventional assets.
As cryptocurrency regulation intensifies across jurisdictions, Canada is increasing its efforts through these proposed capital regulations that focus on two sectors – banks and insurers – when it comes to managing exposures related to cryptocurrencies.