On February 20, 2025, the Office of the Superintendent of Financial Institutions (OSFI) released updates to the Capital and Liquidity Treatment of Crypto-asset Exposures Guidelines, alongside new consultations on capital adequacy requirements. These guidelines outline how federally regulated financial institutions should manage capital and liquidity requirements for crypto-asset exposures and will take effect for the 2025 fiscal year-end.
Since 2022, the Canadian Web3 Council has actively engaged with OSFI through consultations and advocacy to support a regulatory framework that enhances transparency and financial stability while fostering innovation. These latest updates reflect key improvements resulting from our efforts, particularly in the lowering of the infrastructure risk add-on to 0% and OSFI’s commitment to continued consultations.
While we recognize this progress, some elements of the framework still limit financial institutions’ ability to participate in the digital asset sector. We continue to monitor the regulatory treatment of digital asset custody services, fiat-backed stablecoins, and crypto-asset classification.
Key Considerations
1. Digital Asset Custody and Exposure Limits
OSFI’s guideline limits banks’ exposure to Group 2 crypto-assets (including Bitcoin, Ether, and certain stablecoins) based on the banks’ Common Equity Tier 1 (CET1) capital. The definition of “exposure” includes both on- and off-balance sheet amounts, meaning banks must account for both crypto assets they hold and digital asset custodial services provided to clients on a segregated basis.
The requirements will limit the ability of Canadian financial institutions to provide digital asset custody, potentially increasing reliance on foreign custodians.The current approach also emphasizes financial resilience (as measured by regulatory capital), whereas greater focus on cyber expertise and operational (i.e., technical) resilience of the entity providing digital asset custodial services may be warranted (e.g. securing the cryptographic keys). A more refined approach—distinguishing between balance sheet risks and off-balance sheet custody—could better align with prudential objectives while ensuring financial institutions can securely support digital asset markets in Canada.
2. Regulatory Treatment of Fiat-Backed Stablecoins (FBSCs)
The guidelines do not explicitly address whether banks (or their subsidiaries) are permitted to issue FBSCs, leaving some uncertainty in this area.
Furthermore, only FBSCs that meet stringent criteria qualify as Group 1b assets and are excluded from receiving High-Quality Liquid Asset (HQLA) status under Group 1a. OSFI’s position is that the credit risk of the issuer should be reflected in the risk weighting of the asset, a view that may stem from the current disclosure-based interim regulatory approach to fiat-backed stablecoins in Canada.
The development of a prudential framework tailored for non-bank FBSC issuers could address OSFI’s credit risk concerns and support financial institutions in engaging with this asset class.
3. Classification of Group 2b Crypto-Assets
The guideline has not yet distinguished between higher-quality Group 2b crypto-assets—such as Bitcoin and Ether—and other digital assets.
We remain optimistic that such classification will continue to evolve in the future. To support this, continued engagement at the global regulatory level will be important. A refined classification approach would provide financial institutions with greater clarity in assessing their engagement with different types of crypto-assets.
4. Infrastructure Risk and Operational Risk-Weighted Assets
A notable improvement in OSFI’s update is the removal of the automatic 2.5% infrastructure risk add-on for Group 1 crypto-assets, reducing capital requirements for financial institutions with exposures to FBSCs and tokenized real-world assets (RWAs). OSFI acknowledged the feedback that this add-on was subjective and duplicative, as infrastructure risks are already accounted for under operational risk guidelines. We support OSFI’s continued observance for any weaknesses in infrastructure for Group 1 crypto assets and to only apply an infrastructure risk add-on, if necessary.
Additionally, the Simplified Approach remains highly conservative and does not provide relief on operational risk-weighted assets. This could discourage financial institutions from engaging with crypto-assets, given the higher capital requirements. OSFI maintains that this conservatism is necessary, but a more balanced approach could better support responsible innovation.
5. Updated Taxonomy for Value-Referenced Crypto Assets (VRCAs)
OSFI has adopted the Canadian Securities Administrators’ (CSA) term “Value-Referenced Crypto Assets” (VRCAs) to describe fiat-backed stablecoins. This step aligns with existing regulatory terminology and promotes greater consistency in applying the guidelines.
However, we continue to recommend that prudentially regulated FBSCs receive a more favourable risk weighting, as this would better reflect their potential role in regulated payment and settlement systems.
Next Steps
To support a well-calibrated regulatory framework, we encourage policymakers to:
- Distinguish between balance sheet risks and off-balance sheet custodial services and consider technical resilience and cyber expertise as risk factors.
- Develop a prudential framework for non-bank FBSC issuers to strengthen the stablecoin sector.
- Reassess operational RWA treatment to ensure a balanced approach to risk mitigation and innovation.
- Engage with international standard-setters on a regulatory taxonomy for crypto-assets, e.g., develop criteria that would further differentiate between higher-quality Group 2b crypto-assets, such as Bitcoin and Ether
- A regulatory approach that balances financial stability with innovation will ensure Canada remains competitive in the evolving digital asset economy. We look forward to continued collaboration with policymakers, regulators, and industry stakeholders.
