Canada Stablecoin Act Sets Reserve Rules, Tightens Oversight, and Reshapes Digital Cash

Source: DefiPlanet Original Title: Canada Stablecoin Act Sets Reserve Rules, Tightens Oversight, and Reshapes Digital Cash Original Link:

Overview

• Canada designates the Bank of Canada as the primary regulator for most fiat-referenced stablecoins, with a prudential regime focused on “good money” standards for digital cash.
• The Stablecoin Act mandates fully backed, high-quality liquid reserves and enforceable 1:1 redemption at par, with strict limits on how reserves can be used.
• The rules aim to safeguard consumers and financial stability while allowing for payments innovation, positioning Canada alongside the U.S. and the EU on stablecoin regulation.

Canada Sets “Good Money” Standard for Stablecoins, Tightens National Oversight

Canada’s federal government has introduced the Stablecoin Act, its first nationwide framework for fiat-referenced stablecoins, making the Bank of Canada the core prudential supervisor for most issuers operating across the country. The framework, foreshadowed in Budget 2025 and described by central bank officials as essential for “good money” in a digital era, is designed to ensure stablecoins used by Canadians resemble safe cash-like instruments rather than speculative products.

Under the draft regime, stablecoin issuers that fall within scope must meet licensing, governance, and disclosure standards similar to those of systemically essential payment firms, with the Bank of Canada empowered to set conditions, conduct oversight, and intervene when risks to users or financial stability emerge. Closed-loop instruments such as prepaid cards and certain bank-issued products are carved out, while banks themselves sit essentially outside the Act and remain overseen under existing prudential rules, raising early questions about future coordination between supervisors.

Reserves, Redemption, and Risk Controls Define What Counts as “Good” Stablecoin

A core pillar of the Stablecoin Act is a set of reserve and redemption rules that effectively define which tokens qualify as “good money” in digital form. In-scope issuers must maintain reserves equal to or above the total par value of all outstanding tokens, backed only by the reference currency (such as Canadian dollars) or other high-quality liquid assets approved by the Bank of Canada. They may not use those reserves for lending, rehypothecation, or yield strategies outside narrow regulatory allowances.

The framework also requires clear, enforceable 1:1 redemption rights at par, with robust liquidity management, so holders can cash out on demand without the delays, haircuts, or freezes seen in previous international stablecoin stress events. Issuers must implement comprehensive governance, risk management, and data security programs that address operational resilience, cyber risk, third-party dependencies, and anti-money laundering and counter-terrorist financing obligations, aligning stablecoin operations more closely with standards applied to traditional payment infrastructures.

The Stablecoin Act’s new oversight aligns with urgent enforcement needs, as demonstrated by record enforcement actions against unregistered platforms. This crackdown underscores the critical need for regulation to ensure financial integrity and consumer protection in the digital cash landscape.