The Canadian Web3 Council and the European Crypto Initiative (EUCI) recently submitted a joint response to the Financial Stability Board’s (FSB) Thematic Peer Review on the Regulation, Supervision, and Oversight of Crypto-Asset Activities and Markets.
This FSB initiative seeks to evaluate how jurisdictions are implementing its high-level recommendations for crypto-asset regulation and systemic risk mitigation. Our joint response reflects both Canadian and European perspectives, informed by the practical experience of adapting existing legal and regulatory frameworks to accommodate crypto innovation while preserving financial stability.
From a Canadian standpoint, this response captures the lessons and challenges of working within a federal system that divides responsibilities for capital markets, banking, and payments across different levels of government. It also outlines the important role policymakers play in ensuring that regulation evolves alongside market development.
1. Financial Stability as a Primary Objective
Canada has not introduced legislation specifically for crypto-asset offerings or services at the federal or provincial level. Instead, a sectoral approach has been adopted: banking, custody, payments, and capital markets activities involving crypto-assets are regulated under existing frameworks. This structure reflects Canada’s constitutional division of powers and underscores the need for collaboration between federal and provincial regulators, particularly where prudential oversight and financial stability are concerned.
For example, Canada’s system would benefit from coordinated tools such as a shared database to monitor financial health, supervision of global fiat-backed stablecoin arrangements used for payments and settlements, and guidance on cold storage custody thresholds to manage jurisdictional risk.
Federally Regulated Financial Institutions (FRFIs) are overseen by OSFI under a robust prudential framework. OSFI’s new capital treatment guidelines for crypto-asset exposures (aligned with the Basel framework) come into effect on November 1, 2025. These include high capital charges and exposure limits for certain types of crypto-assets. In addition, OSFI has finalized Pillar 3 Disclosure Guidelines, which require FRFIs to disclose crypto-asset exposures starting in Q1 2026. These disclosures will enhance transparency and market discipline.
FRFIs are expected to inform OSFI about their crypto-asset policies, risk assessments, and activities. However, federal legislation has not been amended to expressly permit or prohibit FRFIs from issuing crypto-assets, leaving legal clarity in this area unresolved.
2. Stablecoins: Clarifying Roles and Reducing Friction
The joint submission highlights the macro-financial risks of over-reliance on USD-denominated stablecoins, which account for over 78% of global crypto trading pairs. MiCA addresses these concerns through strict requirements on euro-denominated stablecoins, including reserve management, redemption rights, governance, and payment usage thresholds. Since June 2024, several MiCA-compliant euro stablecoins have been approved, with EURC (Circle) now accounting for 45% of the EUR-stablecoin market.
In contrast, Canada treats stablecoins as “value-referenced crypto-assets” (VRCAs) regulated under securities law by the CSA. This interim framework requires issuers of single-fiat VRCAs to file a prospectus or similar disclosure document. It is a disclosure regime, not a prudential one.
Circle is currently the only stablecoin issuer to comply, allowing USDC to remain listed under a December 2024 undertaking. Absent this, registered trading platforms would have been required to delist USDC.
The securities-based approach raises practical challenges:
- Businesses and consumers face legal and tax uncertainties.
- Payment service providers (PSPs) may be required to register as securities dealers.
- Domestic issuers encounter barriers to listing, especially for CAD-referenced VRCAs.
As highlighted in other submissions to the FSB, including Circle’s, inconsistent regulation across jurisdictions can undermine the global fungibility of stablecoins. Strict local requirements such as reserve levels, capital buffers, and redemption rules, risk fragmenting liquidity and reducing efficiency.
CW3 supports the development of a tailored federal prudential licensing regime for non-bank fiat-backed stablecoin issuers to enable mutual recognition and promote CAD stablecoin adoption. A risk-based regulatory approach is key. It allows flexibility while maintaining financial stability; a balance that stablecoin issuers widely support. To avoid market fragmentation, global standards should be harmonized, and jurisdictions should recognize equivalent regulatory regimes.
3. Standardisation and Industry Cooperation
The submission underscores the role of initiatives like SEEBLOCKS.EU in promoting best practices in compliance, risk management, and interoperability. While SEEBLOCKS is EU-based, it is actively engaged in international standard-setting efforts, including collaboration with bodies such as ISO.
CW3 and EUCI encourage the FSB to prioritise the development of coherent global standardisation strategies and to engage with initiatives that bridge industry practice with regulatory goals. Aligning global standards with jurisdiction-specific implementation efforts can reduce fragmentation, lower compliance burdens, and support the responsible adoption of distributed ledger technologies.
4. Decentralised Finance (DeFi): A Monitoring-First Approach
The joint submission references the January 2025 report by the EBA and ESMA, which found that DeFi accounts for only about 4% of global crypto-asset market cap and that euro-denominated stablecoins have low adoption within DeFi. EU-based users represent a small proportion of DeFi participants, and traditional financial institutions have minimal exposure to DeFi markets.
The report concluded that while DeFi presents risks — such as cyber threats and money laundering — these are currently manageable. The recommendation is to maintain a monitoring-first strategy. CW3 and EUCI support this approach and caution against premature regulation.
The submission notes that several DeFi protocols already adopt practices such as smart contract audits, transparent governance, and upgrade mechanisms. These standards are driven by reputational incentives and community expectations rather than regulation. FSB should continue encouraging the voluntary adoption of best practices and avoid regulatory gatekeeping that could limit innovation.
5. Multi-Service Providers: Risks Can Be Managed
The FSB has raised concerns about firms offering multiple crypto services (e.g., trading, custody, lending) under one roof. The submission notes that MiCA addresses this by requiring internal segregation, governance controls, and risk management for crypto-asset service providers (CASPs).
Canada’s capital markets and banking frameworks also contain mechanisms to mitigate conflicts of interest and self-dealing. These can be extended to crypto-asset activities. A blanket prohibition on multi-service providers is unnecessary — tailored regulation can effectively manage these risks while supporting operational flexibility.
Conclusion and Recommendations
Canada’s experience shows that adapting existing regulatory frameworks can support innovation while preserving financial stability. However, as crypto use cases expand beyond investment — such as payments, NFTs, and Web3 applications — regulators must remain open to evolving their frameworks to meet new challenges.
CW3 and EUCI offer the following recommendations for the FSB’s consideration:
- Recognise MiCA and Canada’s prudential framework for FRFIs as aligned with FSB financial stability objectives.
- Acknowledge that a singular focus on stability may slow innovation; a balanced approach is required.
- Consider the implications of USD-denominated stablecoins and examine MiCA’s protections as a model.
- Create pathways for mutual recognition of stablecoin regimes between jurisdictions.
- Support international standardisation efforts through cooperation with bodies like SEEBLOCKS and ISO.
- Maintain a monitoring-first approach to DeFi rather than premature regulatory intervention.
- Allow multi-service providers to operate under strong governance and risk management rules.
- Recognise the critical role of policymakers in defining crypto market structure and updating legacy frameworks to support a broader range of use cases.
