Our Response to OSFI’s Latest Consultation

The Office of the Superintendent of Financial Institutions (OSFI) recently held a consultation on their proposed Guidelines on the regulatory capital and liquidity treatment of crypto asset exposures. Simply put, a set of suggested rules outlining how Financial Institutions (FIs) should manage and account for the capital and liquidity levels related to their holdings or investments in cryptocurrencies.

We support OSFI’s goal to provide clarity on the prudential treatment of crypto asset exposures to those banks and insurance companies supervised by OSFI. However, from an industry perspective, we find the guidelines in its present form to be overly conservative. Restrictive prudential policies will especially inhibit the growth of regulated custodial services within Canada and benefit foreign custodians. Any prudential requirement that makes it even more difficult and costly to obtain the required insurance coverage to operate in Canada will further affect the growth of the crypto asset sector.


Key issues

  • Broad Classification: The Group 1b classification is too broad, potentially leading Financial Institutions to bypass classifications, which could have a negative downstream effect on the crypto asset industry.
  • Risk Profile Mismatch: The classifications within the Proposed Guidelines don’t accurately reflect the risk profiles of certain crypto asset types.
  • Infrastructure Risk Add-on: we have concern over the punitive impact of imposing a subjective blanket 2.5% infrastructure risk add-on for Group 1 crypto assets, affecting both banks and insurance companies.
  • Exposure Limit Concerns: The imposed Exposure Limit for Group 2b crypto assets and a simplified method that requires a full deduction of crypto exposure from CET1 can have unintended consequences. This constraint may significantly impact banks providing digital asset custodial services, affecting crypto trading platforms and potentially lessening investor protection.
  • Impact on Operational RWA: The proposal could disincentivize banks from offering crypto asset products and services due to its impact on Operational Risk-Weighted Assets

Additionally, The OSFI Guidelines are one of several frameworks currently in development and that have varying dependencies. We have concerns that the development of regulatory frameworks in isolation can create diverging and conflicting policies resulting in additional regulatory burden on market participants.



  1. Simplify Classification Process: simplify the rules for categorizing different types of cryptocurrencies for greater clarity, and remove unnecessary conditions about wallet providers to ensure consistent asset classifications between how different Financial Institutions classify crypto assets. The classification of crypto assets should be the same for all FIs.
  2. Refine Descriptions & Recognition of Assets: Adopt nuanced descriptions for stablecoins and develop taxonomy for significant crypto assets to make them easier to classify, and recognize them as Financial Market Infrastructures (FMIs), giving certain digital assets, like stablecoins and other significant crypto assets, a formal status within the financial system.
  3. Create Stablecoin Framework: Establish a bespoke regulatory framework for stablecoins, considering their role in payments and settlements, preferably under the Retail Payments Activities Act, to enable regulated status for non-bank Canadian stablecoin issuers.
  4. Address Operational Risk: we recomend for relief in operational risk and a carveout for Operational Risk RWA under the Simplified Method, to make the regulations more balanced and less punitive.
  5. Review Infrastructure Risk Add-On: Reconsider the mandatory 2.5% infrastructure risk add-on for Group 1 crypto assets as it could be subjective and is inconsistent with Basel’s recommendation. Instead, the focus should be shifted towards identifying and addressing specific vulnerabilities within the infrastructure of crypto assets. We believe the Digital Innovation Sandbox can be used to study distributed ledger technology (DLT) and blockchain infrastructure with the specific goal of identifying those crypto assets that meet the Group 1b requirements.
  6. Expand Group 1a: Include digital payment tokens redeemable at peg value and fully reserved with traditional cash in Group 1a crypto assets, and recognize the variability in prudential treatment needs among Group 2b crypto assets like BTC and ETH.
  7. Clarify Custody Guidelines: Clarify guidelines on crypto assets under custody, consider an explicit carve out for off-balance sheet exposure and provide relief from Operational RWA for bank custodians under the Simplified Approach to avoid penalizing banks providing custodial services.
  8. Publish Study Results: We understand that the BIS/OSFI plan to study blockchain and stablecoins with the possible result of adding a basis risk test and other metrics. We ask that BIS/OSFI publish the results along with any recommendations for stakeholder input, if the BIS recommends the inclusion of such a test as a condition for Group 1b crypto assets.

To wrap it up

We urge policymakers and Heads of Agencies to collaborate and to apply a holistic and principled approach to setting a regulatory framework for crypto assets. We understand the desire to bring participants into the regulatory perimeter. However, we believe more coordination amongst federal and provincial agencies can help to reduce the regulatory burden on regulators and market participants (especially small, medium enterprises).

We encourage policymakers, regulators and others to adopt a forward-looking, strategic approach to establish a clear and bespoke regulatory framework for crypto assets. We emphasize the importance for Canada to adopt a global view and taxonomy when tailoring a regulatory framework for crypto assets given the global reach of crypto assets.

Furthermore, we encourage the Heads of Regulatory Agencies to resist path dependency, and to take a holistic, principles-based approach when setting policy for prudential regulation, consumer and/or investor protection. Alignment on “purpose” can allow Canadian innovators with global operations to be more competitive and run more efficient and compliant global operations.

The above is a snapshot of our response. See our full response here.

1 OSFI is an independent agency of the Government of Canada reporting to the Minister of Finance. It is the sole regulator of banks, and the primary regulator of insurance companies, trust companies, loan companies and pension plans in Canada.

2 Statement by Peter Routledge, Superintendent of Financial Institutions. The guidelines reflect recent changes to the recommendations of the Basel Committee on Banking Supervision for new banking standards for crypto asset exposures (Dec 2022)

3 RWA refers to a measure used by financial institutions to represent the level of operational risk, incorporating factors like the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events, and it impacts the amount of capital a bank is required to hold to cover potential losses.

4 FMIs are the fundamental systems, platforms, and networks that facilitate the clearing, settling, and recording of monetary transactions and securities. They are crucial for maintaining the stability and integrity of financial markets. Examples include payment systems, securities depositories, and clearinghouses.

5 The Heads of Regulatory Agencies Committee comprises members who are heads or senior representatives of key federal and provincial agencies with regulatory and prudential responsibility for different elements of the financial system. It includes the Bank of Canada, provincial securities regulators, OSFI and the Department of Finance Canada.