The draft rules would extend Bank of Canada oversight to stablecoin issuers and introduce new compliance requirements.
The Government of Canada has proposed regulations that would prohibit stablecoin yield and introduce rules for issuers and payment providers.
The proposed Stablecoin Regulations would bring the Stablecoin Act (SCA), which received royal assent in March 2026, into play.
The government is also proposing changes to the Retail Payment Activities Regulations that would require PSPs using approved stablecoins to perform payment functions within the scope of Canada’s Retail Payment Activities Act (RPAA).
The Canadian government says competition and innovation are priorities, in addition to addressing risks to stablecoin holders and strengthening confidence in digital payments.
The government has invited stakeholders to comment on the draft rules, with the consultation set to close on 23 December 2026.
Stablecoin yield under scrutiny
One of the most contentious issues in stablecoin regulation globally has been whether holders should be able to earn yield.
Yield-bearing stablecoins allow users to earn a return for holding a token, which is usually funded by the interest generated on the reserves backing the stablecoin.
Regulators have taken different approaches to the issue. In the US, the GENIUS Act prohibits stablecoin issuers from paying interest to holders. However, federal regulators have decided not to impose a blanket ban on third-party intermediaries, meaning crypto exchanges, fintechs and wallet providers can continue to offer yield-linked reward products on a case-by-case basis.
Canada has adopted a stricter stance, proposing regulations that would keep the ban on issuers paying interest or yield and cover indirect arrangements that let holders earn returns through third parties.
Ottawa has outlined the difference between rewards for using a stablecoin and rewards for holding one. Transaction-focused incentives that encourage spending would be allowed provided they link rewards to usage and not ownership.
According to the Department of Finance, the restrictions aim to ensure stablecoins remain payment tools rather than products that compete with bank deposits and other interest-bearing instruments.
New requirements for stablecoin issuers
Under the proposed rules, stablecoin issuers would need to register with the Bank of Canada and maintain reserve assets worth at least the total value of their outstanding stablecoins.
Issuers would also have to redeem stablecoins on a one-to-one basis in the reference currency, completing redemptions within three business days of an initial request. Fees would be capped at 1% of the amount redeemed and issuers would need to publish policies outlining the process and any associated charges.
Monthly reporting requirements would include information on outstanding stablecoins and reserve assets, as well as the number of stablecoins issued and redeemed by people in Canada. Issuers would also need to report certain incidents and significant changes to information previously provided to the regulator.
Payment providers face new obligations
The proposed regulations would also affect PSPs that use approved stablecoins to perform payment functions.
The proposed amendments would introduce a specific safeguarding option for PSPs using stablecoins, allowing them to hold stablecoins through a separate entity whose sole purpose is holding end-user funds.
The changes would also require PSPs to have procedures in place to help end users access their funds without delay if a stablecoin issuer becomes insolvent. These procedures would need to address redeeming stablecoins into the reference fiat currency and identify legal and operational risks that could affect access to funds.
Penalties for non-compliance
The proposed framework would give the Bank of Canada powers to supervise stablecoin issuers and enforce compliance, including through monetary penalties.
Penalties could reach C$1m (US$712,865) for serious violations and C$10m for very serious violations.
Factors considered when deciding a penalty would include the harm caused, the entity’s previous record and the degree of intentionality or negligence.
