Canada has proposed new stablecoin regulations that would require issuers to register with the Bank of Canada — the country's central bank — maintain fully backed reserves, and redeem tokens at face value, as the country prepares to establish a comprehensive framework for digital payments.

The proposed rules, published in the Canada Gazette on October 24, 2026, would require issuers to hold reserve assets denominated in the currency backing their stablecoins, offer redemption at a one-to-one rate, and return funds within three business days of a redemption request. Stablecoins are digital tokens designed to track the value of a currency such as the Canadian dollar, and redemption terms are central to how such fiat-backed tokens function, giving holders a way to exchange tokens for the underlying currency rather than depending on open-market demand.

Redemption fees would be capped at 1% of the amount redeemed. Issuers would also be required to disclose fees and give holders at least seven days' notice before any fee increases.

The consultation closes on December 23, 2026, with the government targeting implementation in fall 2027. The framework follows the passage of Canada's Stablecoin Act in March 2026 and comes as jurisdictions — including the United States under its GENIUS Act — develop their own rules for fiat-backed digital currencies.

Addressing Key Risks

According to Ottawa, the proposed regulations are designed to address risks arising from inadequate reserves, issuer insolvency, weak risk management, and the exposure of sensitive financial information.

The rules would prohibit issuers from paying interest or yield simply for holding stablecoins, although transaction-based rewards would be permitted. Issuers would also be barred from marketing tokens as legal tender, bank deposits, or products covered by government deposit insurance. Taken together, these provisions are designed to draw a clear line between stablecoins as payment tools and products that carry government guarantees or investment-style returns.

Balancing Consumer Protection with Competition

The proposed framework seeks to make stablecoins more reliable for payments and cross-border transfers without allowing consumers to mistake them for government-guaranteed money. The government is also seeking to limit the risk of runs and de-pegging events that could undermine confidence in digital payments — a risk that typically emerges when holders doubt whether an issuer holds sufficient reserves to meet redemptions.

However, the rules raise questions about how smaller Canadian issuers can compete with established international stablecoin providers. Ottawa acknowledges that smaller operators may face higher per-unit redemption costs which is one reason the proposed fee ceiling is set at 1% — despite redemption fees in the existing market generally running around 0.1%.

The consultation also highlights concerns about overlapping federal and provincial oversight, the treatment of financial institutions, and the ability of foreign issuers to qualify under Canada's framework. The government says it wants consistent rules that reduce regulatory duplication and regulatory arbitrage while allowing exemptions where other jurisdictions have substantially similar regimes.

How the Framework Could Be Refined

The consultation gives stakeholders an opportunity to seek clearer rules on how comparable foreign frameworks will be assessed, how reserve assets will be protected if an issuer fails, and how redemption obligations will function during periods of market stress. The Bank of Canada plans to consult on supervisory guidelines before the regulations take effect.

Consumer protection groups have also called for stronger tools to help users compare stablecoins, including a possible rating system. Ottawa has not proposed mandatory ratings, citing limited international experience and uncertainty about their additional benefits. The draft would, however, require issuers to establish complaint-handling procedures and publish information about their tokens, policies, and redemption terms.

Payment Service Providers Drawn Into Scope

The proposals would also bring certain payment service providers using stablecoins within the scope of Canada's Retail Payment Activities Act. The government estimates that about 30 providers not previously covered would face additional requirements involving operational risk management, safeguarding of customer funds, and reporting to the Bank of Canada.

The challenge for Ottawa will be to ensure that the reserve, redemption, and disclosure requirements are enforceable without creating unnecessary barriers to entry or fragmenting the market across jurisdictions. Clear guidance on foreign-regime recognition, proportion compliance costs, and effective consumer disclosures could help reconcile those objectives.

Source: BitcoinKE