Canada has opened for public comment a draft regulation that would ban interest payments to stablecoin holders and require non-bank issuers to maintain full reserves.
According to CoinDesk, the 60-day consultation period ends on December 23. The draft was prepared to implement the Stablecoin Act, which was passed this year, and set out the registration requirements for issuers with the Bank of Canada. The regulatory framework is expected to take effect toward the end of 2027.
Banks worry money will move into stablecoins
At the center of the proposal is a ban on interest payments intended to prevent users from being incentivized to hold their tokens. The ban would cover not only payments made directly by issuers but also yield provided through third parties. Rewards tied to transactions would still be allowed.
The Canadian Bankers Association supports this approach. Banks are concerned that stablecoin yields could prompt customers to withdraw their deposits, reducing the funds available for lending. In a statement to The Logic in June, an association spokesperson said they supported banning both direct and indirect yields.
Platforms that can offer yield under existing approvals are also operating in Canada. This year, Coinbase Canada received permission from the Ontario Securities Commission to offer yield on eligible tokens. Under the approval, customers must be informed of the risks and told that their funds are not protected by deposit insurance.
New requirements for reserves and redemption
The draft would require non-bank issuers to hold reserves equal to the value of their fiat-pegged tokens in circulation. The reserves would need to be held at qualified Canadian financial institutions, such as banks, credit unions, and trust companies.
The proposed requirements also include allowing users to redeem their stablecoins for fiat currency within three business days. Fees charged for these redemptions would be capped at 1%.
Not investment advice.