The zerohash Decision
zerohash, a US-based crypto infra provider, recently received an exemption from the OSC to offer services to Canadian institutional clients to trade in specified fiat-backed stablecoins for immediate delivery without having to register as a dealer in each of the provinces and territories in Canada. Importantly, the exemptive relief is time limited, applies only to a narrow part of zerohash’s business, and is subject to terms and conditions.
The OSC’s decision was noteworthy: it highlights and provides insight into broader policy questions around future market structure. Specifically, who decides what role prescribed stablecoins play in Canada’s future payment, trading and settlement infrastructure? How will securities regulators work alongside the Bank of Canada in regulating stablecoins, once the federal Stablecoin Act and amended Retail Payments Activities Act (RPAA) take effect?
In our view, achieving the desired policy outcomes will require inter-governmental cooperation and coordinated rule-making. In setting regulatory boundaries, treat prescribed stablecoins as payment instruments by embedding an exemption for prescribed stablecoin in securities laws, and recognize that the RPAA will regulate payment functions using prescribed stablecoins to avoid regulatory duplication. Securities oversight should apply to the intermediation of securities transactions, for example, where the associated activities introduce securities market risks, such as leverage, margin, derivatives, shorting, or using stablecoins as eligible collateral.
Federal and Provincial Oversight
The Stablecoin Act and the RPAA (once amended) are the two pieces of federal legislation that will regulate fiat-backed stablecoins, governing stablecoins issued by non-financial institutions and payment functions using stablecoins performed by payment service providers. The Stablecoin Act establishes that issuing stablecoins does not equate to accepting deposit liabilities under specific federal laws, that issuing a compliant stablecoin is not dealing in securities under specific federal financial institution laws, and it authorizes the Bank of Canada to regulate non-financial institution stablecoin issuers. However, the federal framework does not usurp securities regulators who characterize fiat-backed stablecoins as a “security”, and/or “derivative” in certain provinces [1]. This characterization means that securities regulators have a say in who can do what with stablecoins in Canada’s financial markets, how they operate, and under what terms [2] [3]>. Among leading jurisdictions, Canada remains an outlier in treating and regulating stablecoins as securities. Crucially, stablecoin issuers require an efficient distribution pathway to make available prescribed stablecoins for use in payments, and in settling capital markets transactions. Under the Stablecoin Act, “issue” includes creating a stablecoin and making it available for purchase, directly or indirectly, by a person in Canada. This is distinct from performing a payment function using stablecoins under the amended RPAA, which will include transmitting or maintaining an end user’s tokenized payment instrument or private key, and likely includes performing one of the five current payment functions (i.e., providing or maintaining an account, initiating an electronic fund transfer, authorizing an EFT, or providing clearing or settlement services) using stablecoin, provided that fiat-based stablecoins are defined in the statute as a ‘prescribed unit’. An entity could perform multiple functions and therefore be subject to both Acts. The potential overlap triples where securities regulation also attaches to making the stablecoin available for use in an associated securities transaction.[4]Characterizing and regulating fiat-backed stablecoins as securities, and/or derivatives rather than as payment and settlement instruments have real operational and regulatory compliance consequences for market participants.
A Transitional Measure, Not a Long-Term Framework
This brings us back to the zerohash Decision. On the one hand, the time-limited relief order could be seen as a technical exemption, ensuring that someone is overseeing stablecoin issuance and trading before the Stablecoin Act takes effect. It’s understandable for the CSA to regulate the activities during the transition period. However, this approach is less than ideal as a long-term pathway for using Bank-prescribed stablecoins in the future, or in deciding future market structure. On the other hand, giving an exemption for trading in stablecoins for immediate delivery signals that the OSC’s position is that a fiat-backed stablecoin is a security. In the interim, it creates regulatory uncertainty and introduces unnecessary regulatory duplication for supervisors, and will create an untenable situation by imposing a regulatory burden for market participants offering similar services in the future. Relief orders are tailored to specific facts and circumstances and are a useful mechanism for novel use cases. The question is whether the future market structure of Canada’s capital markets should be set by securities regulators using bespoke, one-off temporary relief orders? Or, would the market ecosystem be better served through coordinated policy decisions and by providing clear regulatory boundaries (and more predictable regulatory outcomes) for using prescribed stablecoins in Canadian capital markets?
Regulatory certainty can spur innovation in Canada. Regulatory uncertainty has the opposite effect. The policy question once the federal framework is operational is whether the exemptive relief pathway should continue to be the principal regulatory gateway for transactions involving prescribed stablecoins? Absent regulatory clarity, there is a real possibility for overlapping functions and oversight without clear regulatory outcomes. Indeed on a recent podcast, OSC CEO Grant Vingoe stated that a goal is to avoid regulatory duplication. However, he believes securities regulators would retain a role where a prescribed stablecoin is used in capital markets transactions. [5] The challenge then is translating that broad regulatory objective into clear allocation of responsibilities once the Stablecoin Act, and the amended RPAA, are operational.
Infrastructure and the Regulatory Boundary
The zerohash Decision involves more than just issuance and trading stablecoins: it intersects with several, unclearly overlapping regulatory regimes. The Decision highlights the importance of intergovernmental market structure policy coordination in Canada’s fragmented regulatory regime. Decision-making cannot be made solely through individual exemptive relief applications.
zerohash provides infrastructure that facilitates “spot trading” using stablecoins: exchanging fiat-backed stablecoins for fiat currency and vice versa, or converting to foreign denominated stablecoins for immediate delivery. zerohash orchestrates such transactions, alongside a zerohash affiliate which trades as principal and as a counterparty to zerohash’s institutional clients. These clients may use stablecoins for a variety of purposes including cross-border payments, or as the settlement leg of a trade. Some of zerohash’s clients may themselves be regulated payment/market participants. A review of the Decision raises a crucial question: where an infrastructure provider facilitates a payment function (i.e., the transfer, exchange or settlement of prescribed stablecoins, or payment instruction to convert to fiat for immediate delivery) a relevant regulatory question arises: will the infrastructure provider be performing a payment function under the amended RPAA, requiring registration as a payment service provider? The decision document states that zerohash’s infrastructure can be used by clients for trading, payments, custody, settlement, liquidity, and regulatory compliance, which allows its clients to offer services such as crypto asset trading, stablecoin payments, and cross-border transfers. In the US, zerohash operates their businesses under state MSB licenses and trust licenses. In Canada zerohash is registered as a money service business with FINTRAC.
The zerohash Decision concerns infrastructure that supports payments, custody, settlement, liquidity, and regulatory compliance, in addition to issuing and trading stablecoins. That range of functions makes it useful for examining where the Stablecoin Act and the amended Retail Payment Activities Act (RPAA) may intersect with provincial securities and derivatives laws.
Figure 1. Potential RPAA Touchpoints Across the Stablecoin Lifecycle
Interpretive note. The mapping identifies possible intersections rather than definitive classifications. Whether an entity performs an RPAA payment function depends on its role and the transaction structure. The sixth payment function is enacted but not yet in force, and the mapping assumes that a fiat-based stablecoin will be treated as a prescribed unit. The mapping identifies possible intersections rather than definitive classifications. Whether an entity performs an RPAA payment function depends on its role and the transaction structure. The sixth payment function is enacted but not yet in force, and the mapping assumes that a fiat-based stablecoin will be treated as a prescribed unit.
| Stablecoin lifecycle activity | RPAA payment function | Boundary note |
|---|---|---|
| Initiate a purchase or redemption | Initiation of an EFT; authorization/transmission of instruction related to an EFT. | Depends on the activity associated with the end user’s instruction. |
| Accept fiat pending issuance or redemption | Holding funds for an end user. | Triggered only if the issuer holds funds at rest for the end user. |
| Mint or burn a stablecoin | No automatic RPAA match. | Creation or cancellation of a prescribed unit or tokenized payment instruction alone (without transmission or maintenance, etc.) is not a payment function. |
| Make a prescribed Stablecoin available and transfer it to a distributor | Transmission of a tokenized payment instrument or end user’s private key initiation, authorization/transmission of an instruction related to an EFT. | This is a central boundary question to be settled. |
| Manage or hold reserve assets | No direct RPAA match The reserve assets are to satisfy redemption obligations. | |
| Maintain an end user’s wallet or private key | Transmission or maintenance of a tokenized payment instrument or private key. Account or maintenance of an account. | Sixth payment function. |
| Settle a transaction using prescribed stablecoins | Provision of clearing/settlement services. Transmission or maintenance of a tokenized payment instruction | Treatment depends on the associated transaction and the provider’s role. Sixth payment function. |
| Route or coordinate stablecoin payments | Initiation, authorization/transmission of an instruction related to an EFT. Transmission or maintenance of a tokenized payment instrument, | Orchestration may engage several payment functions. Sixth payment function. |
Sources: Stablecoin Act, S.C. 2026, c. 3, s. 600; Retail Payment Activities Act, S.C. 2021, c. 23, s. 177; Budget 2025 Implementation Act, No. 1, S.C. 2026, c. 3, s. 604.
Regulate the Activity, not the Instrument.
The regulatory boundary should be determined primarily by the economic function being performed, rather than by the fact that the prescribed stablecoin happens to enable secondary-market trading. This is consistent with the approach taken to regulating payment activities under the RPAA. Regulatory clarity will be crucial to avoiding unnecessary overlap and duplicative regulations that impose additional compliance costs on market participants without risk mitigating benefits. This concern sits within a broader regulatory context. The C.D. Howe Institute’s third annual scorecard found that 92 percent of the Canadian financial regulations examined targeted market abuse, stability, transparency, or consumer protection, while only 17 percent aimed to improve efficiency or promote growth and innovation. The report also associated tighter macroprudential regulation with weaker subsequent economic growth and found no measurable reduction in recession probability. Although the analysis was not specific to stablecoins, it supports the case for weighing compliance costs and expected risk-reduction benefits when regulatory responsibilities overlap.[6] For example,
- Remove duplication by permitting regulated CTPs to list prescribed stablecoins without having to independently assess or determine compliance by the issuer with requirements that will be subject to Bank of Canada supervision. A robust ecosystem requires an operational rulebook and common operating standards to orchestrate such activities including for financial market infrastructure.
- Regulate entities performing payment functions using a prescribed stablecoin as PSPs. They should not be required to register as a dealer, or have to apply for relief from securities laws, solely because the stablecoin is enabled for secondary market trading. In these cases, treat the prescribed stablecoin as a regulated payment instrument.
- Securities regulation should attach to the trading or intermediation of security tokens/crypto assets on regulated CTPs, or using stablecoins as eligible collateral in capital markets transactions — not merely because a stablecoin is being converted, transferred or used as the settlement asset. CTPs would focus on interoperability and resilience – the ability of the platform to demonstrate that it can support the prescribed stablecoin in accordance with applicable operational, platform custody, platform risk management and market integrity requirements.
However, clarify that spot transactions using prescribed stablecoins that incorporate, where permissible, leverage, margin, shorting, derivatives or similar financial-market features would remain subject to applicable securities regulatory oversight.
The above examples draw boundaries that are activity-based rather than instrument-based: stablecoin issuance, payment functions and financial market infrastructure. Securities regulation should apply where the associated transaction introduces securities-market risks, i.e., leverage, margin, derivatives, shorting or intermediation of securities, rather than simply because the settlement instrument is a stablecoin.
Coordinating Canada’s Long-Term Framework
The OSC’s zerohash Decision demonstrates that Canada’s securities regulatory architecture can accommodate stablecoin innovation through giving temporary exemptive relief on a case by case basis. However, it highlights an important policy matter: whether Canada should continue to rely on that mechanism to determine which regulated payment and settlement instruments can be used as digital money in Canada’s capital markets once a federal stablecoin framework is operational. Matters involving future market structure should be addressed through coordinated policy and rulemaking rather than left to bespoke exemptive relief. Perhaps it’s time to permanently embed the exemption for regulated stablecoins in securities legislation?
2. Canadian Securities Administrators. (October 5, 2023). CSA Staff Notice 21-333: Crypto Asset Trading Platforms—Terms and Conditions for Trading Value-Referenced Crypto Assets with Clients. https://www.osc.ca/en/securities-law/instruments-rules-policies/2/21-333/csa-staff-notice-21-333-crypto-asset-trading-platforms-terms-and-conditions-trading-value
3. Ontario Securities Commission. (July 30, 2026). zerohash LLC. https://www.osc.ca/en/securities-law/orders-rulings-decisions/zerohash-llc
4. Vingoe, Grant. (August 10, 2026). Interview: OSC CEO Grant Vingoe on Crypto in Canada, Part II. Interview by Jacob Robinson. Law of Code, podcast audio. https://open.spotify.com/episode/7oSH7socyOo0fcKNr7h4ie
5. Stablecoin Act, S.C. 2026, c. 3, s. 600, s. 2, definition of “issue.” https://laws-lois.justice.gc.ca/eng/acts/S-15.9/section-2.html
Budget 2025 Implementation Act, No. 1, S.C. 2026, c. 3, s. 604. https://laws-lois.justice.gc.ca/eng/AnnualStatutes/2026_3/page-49.html
6. Caracciolo, Gherardo. (August 2026). Walking the Tightrope: Canada’s Financial Regulatory Scorecard, Year Three. Commentary 726. Toronto: C.D. Howe Institute. https://cdhowe.org/publication/walking-the-tightrope-canadas-financial-regulatory-scorecard-year-three/
