The introduction of the Stablecoin Act is a significant step in providing legal clarity for fiat-backed stablecoins in Canada. This proposed legislation establishes a framework for the registration and oversight of no-yield, fiat-backed stablecoins, ensuring that issuers operating under the Act are not considered to be dealing in securities under federal law.
This clarity is essential for fostering innovation in Canada’s digital economy and signals a promising direction for further regulatory harmonization, especially at the provincial level, where additional legal amendments will be necessary to prevent overlapping or conflicting frameworks.
Key Highlights of the Stablecoin Act
Scope of the Act:
The Act applies to the activity of issuing stablecoins, requiring issuers to register with the Bank of Canada and comply with forthcoming regulations. Approved stablecoins will be listed in an official register maintained by the Bank.
Definition of a Stablecoin:
A stablecoin is defined as a digital asset designed to maintain a stable value. Importantly, the Act allows further refinement of this definition through regulations, which could help distinguish federally regulated stablecoins from other value-referenced crypto assets.
Federal Exemption from Securities Law:
Under Section 3, the issuance of stablecoins compliant with this Act is not considered dealing in securities under key federal laws (Bank Act, Insurance Companies Act, and Trust and Loan Companies Act). However, clarity is still needed from provincial securities regulators to prevent dual regulatory burdens.
Exempt Entities:
The Act does not apply to stablecoins issued by financial institutions, central banks, or entities issuing closed-loop stablecoins, which future regulations will define.
Not Legal Tender or Deposit Instruments:
Stablecoins under this Act are not legal tender and are not considered deposit-taking instruments. Deposit tokens issued by banks remain under the purview of OSFI.
Jurisdictional Scope:
The legislation is intended to cover stablecoin arrangements that operate interprovincially or internationally, aligning with federal jurisdiction over trade and commerce.
Administration by the Bank of Canada:
The Bank of Canada will oversee stablecoin issuers. The Governor may grant exemptions for specific issuers, classes of issuers, or stablecoins, providing flexibility that could enable mutual recognition of international issuers or a tiered regulatory approach.
Operational Requirements:
The Act aligns with existing CSA guidance (SN 21-332 and SN 21-333) on value-referenced crypto assets, including:
- 1:1 redemption requirements
- Reserve asset standards
- Custody of assets
- Transparent disclosures
Additionally, prudential oversight provisions (sections 65–66) require issuers to maintain sound operational, governance, and risk management practices. The Bank will also have the authority to intervene in cases of unsafe practices.
No Yield Allowed:
Stablecoin issuers are prohibited from offering any form of interest or yield to holders, directly or indirectly, whether in cash, digital assets, or other incentives. While this provision mostly aligns with the U.S. GENIUS Act, the inclusion of the term “indirectly” in the Canadian legislation raises questions about whether distribution arrangements that result in benefits to holders could be captured. Further clarity on this issue is urgently needed to ensure compliance and support product design in the Canadian market.
Amendments to the RPAA:
A consequential amendment brings tokenized payment instruments under the Retail Payment Activities Act (RPAA), further integrating stablecoins into the broader digital payments regulatory framework.
What Comes Next?
The Stablecoin Act lays important groundwork for a safe and regulated environment for stablecoins in Canada. As the legislation moves toward implementation over the next 12 to 18 months, the focus now shifts to how the framework will function in practice. This transitional period presents a critical window for the Web3 industry and government to work together to ensure the Act is applied in a way that is clear, coordinated, and innovation-friendly.
One of the key steps in this process will be working with the Canadian Securities Administrators (CSA) to revisit their current guidance. Given the federal clarity provided by the Act, there is an opportunity for the CSA to reissue its guidance and consider a blanket exemption for stablecoin issuers that fall under this new framework. Doing so would reduce uncertainty and help avoid unnecessary regulatory overlap.
There is also an urgent need to clarify how the prohibition on yield and interest will be interpreted. The Act prohibits issuers from offering yield to holders, whether directly or indirectly, in cash, digital assets, or other forms. This is conceptually similar to the U.S. GENIUS Act, which limits yield payments made “solely in connection with” holding or using a stablecoin. However, the Canadian language appears more restrictive and could potentially capture distribution arrangements between issuers and intermediaries if those arrangements result in any yield-like benefit to the end user. It remains unclear whether distributors, such as crypto trading platforms, can offer incentives or rewards without contravening this prohibition. This ambiguity has direct implications for market participants and must be addressed as part of the regulatory development process.
By taking these steps, Canada can build a regulatory foundation that supports responsible innovation, protects consumers, and strengthens its position as a leader in the global Web3 economy.
