Canada has proposed a comprehensive regulatory framework for stablecoin issuers, introducing strict reserve requirements, redemption protections and restrictions on interest payments.
The draft regulations, published in the Canada Gazette on October 24, 2026, establish how companies issuing fiat-backed stablecoins would operate under federal supervision.
The proposal builds on Canada's Stablecoin Act, which became law on March 26, 2026, and places issuers under the oversight of the Bank of Canada.
Ottawa has opened a 60-day public consultation, with comments accepted until approximately December 23.
If finalized, the regulations are expected to take effect in fall 2027, giving affected companies time to prepare for compliance.
Stablecoins Must Maintain Full Reserve Backing
Under the proposed framework, every stablecoin must be backed one-to-one by eligible reserve assets, ensuring sufficient funds are available for redemptions.
Permitted reserves would include cash, government debt securities maturing within three months and qualifying money market funds holding those assets.
Issuers would be required to maintain reserves with Canadian custodians in segregated accounts.
These arrangements are designed to protect customer funds from claims by an issuer's creditors in bankruptcy proceedings.
Stablecoin holders would have the right to redeem any amount within three business days, with redemption fees capped at 1%.
Issuers would also be prohibited from advertising their tokens as bank deposits or suggesting they benefit from government guarantees or deposit insurance.
The requirements aim to strengthen consumer confidence in stablecoin payments.
Canada Moves to Ban Stablecoin Yield Payments
One of the proposal's most significant provisions is a prohibition on stablecoin issuers paying interest or yield simply for holding their tokens.
The restriction would also cover indirect arrangements involving third parties.
Companies could not circumvent the ban by sharing reserve income with token holders or using intermediaries to distribute holding-based rewards.
Incentives linked to using stablecoins for transactions would remain permitted, distinguishing payment rewards from investment returns.
Issuers would still be allowed to retain earnings generated by reserve assets, provided their reserves remained sufficient.
The distinction reflects concerns that yield-bearing stablecoins could compete with traditional savings products.
Bank of Canada to Supervise Stablecoin Issuers
The Bank of Canada would oversee registration and compliance for stablecoin issuers under the proposed regulations.
Companies would also face customer service obligations, including acknowledging complaints within seven days and resolving them within 30 days.
Regulatory penalties could reach C$1 million for serious violations and C$10 million for very serious breaches.
Major violations would include failing to maintain adequate reserves or refusing to redeem stablecoins at their required value.
Government estimates suggest approximately five stablecoin issuers and 30 additional payment companies could fall under the supervisory framework.
These requirements are intended to improve accountability while supporting stablecoin use in payments.
Canada Takes Stricter Approach Than US
Canada's proposal arrives amid ongoing disagreements over stablecoin rewards in the United States.
The American GENIUS Act, signed into law in July 2025, prohibits stablecoin issuers from directly paying interest to holders.
The treatment of rewards offered by exchanges and other intermediaries has remained controversial.
US banking organizations argue that such arrangements could encourage deposit withdrawals and reduce lending capacity.
Canada's proposed rules take a more explicit approach by prohibiting indirect holding-based yield arrangements, while allowing transaction-related incentives.
The distinction could influence how cryptocurrency platforms structure stablecoin products in the Canadian market.
Stablecoin Rules Target Fall 2027 Implementation
Canada's government views regulated stablecoins as a potential tool for improving domestic and international payments.
Bank of Canada executive Ron Morrow previously emphasized the need for faster, cheaper and more accessible cross-border transactions.
The proposed framework seeks to support those benefits without allowing payment stablecoins to operate like interest-bearing investment products.
The regulations remain open for consultation and could change before final adoption.
For now, Canada is moving toward a stablecoin system built around full reserves, customer redemption rights and strict limits on yield payments, with implementation targeted for fall 2027.
