OSFI Clarifies the Legal Position

In a September 10 statement, the Office of the Superintendent of Financial Institutions (OSFI) said it applies a technology-neutral approach to financial products. The statement confirms that the technology used to record or transfer a deposit does not determine its legal treatment. The statement is available from OSFI.

For banks, this removes a basic legal obstacle. A deposit token can be assessed as a version of an existing deposit product rather than requiring the institution to first establish that blockchain has created an entirely new category of liability. OSFI did not, however, approve a national launch program or waive supervisory expectations for individual products.

OSFI also published a separate capital and liquidity guideline on September 10. The guideline treats qualifying tokenized claims on banks, including deposits, as tokenized traditional assets. It takes effect in November 2026 or January 2027, depending on an institution’s fiscal year.

The guideline explains how banks should apply capital and liquidity requirements when they hold or issue qualifying tokenized assets. It does not prescribe how a future deposit product must be designed.

What a Tokenized Deposit Represents

A tokenized deposit remains money held at the issuing bank. The difference is that ownership and transfers can be represented on a digital ledger, potentially allowing the deposit to be used in automated payment or settlement processes.

That distinction is important because a tokenized deposit does not move customer money out of the banking system or convert it into a publicly circulating stablecoin. It could make existing bank money easier to use outside ordinary processing windows while preserving the legal relationship between the customer and the bank.

Operational Requirements Remain

Before offering such a product, a bank must determine who can hold and transfer the token, which identity checks apply, how mistaken transfers will be handled, and whether an outside provider will operate the wallet or ledger. OSFI makes clear that the bank remains responsible for managing those arrangements, even when a third party provides the technology.

The potential applications are practical. In a well-designed system, tokenized deposits could allow a company to release funds after delivery conditions are met, rebalance liquidity after normal banking cut-off times, or settle tokenized assets against cash with less reconciliation work.

Those potential efficiencies also create operational pressure. The Bank of Canada has noted that automated systems can reduce delays, while coding errors and connected ledgers can spread a disruption more quickly. Banks therefore need rules governing access, transaction limits, recovery procedures and manual intervention before faster processing becomes commercially useful.

Cross-Bank Interoperability Remains Unresolved

The main challenge is not placing a deposit on a blockchain, but making that deposit usable when the receiving customer banks with another institution. A token issued by Bank A remains a claim on Bank A, with its own credit relationship, access rules and compliance checks.

Recent international tests illustrate the distinction. DBS and Citi tested a 24/7 tokenized USD payment, showing that bank-issued money can move outside normal banking hours. Final settlement, however, still used established banking infrastructure. The test demonstrated that the technology can improve execution, but it did not show that banks had created a single shared pool of digital money. Coindoo reported on the DBS and Citi test.

Swift’s blockchain-ledger initiative is seeking to address this cross-bank problem. Its success will depend on common rules for settlement, compliance, error handling and the legal treatment of claims if a participating institution fails.

Canada Clarifies the Product, Not the Network

OSFI’s statement gives Canadian banks a clearer legal basis for testing tokenized deposits. The first applications are likely to involve controlled services for corporate payments, treasury management and tokenized-market settlement, where banks can limit participants and define responsibilities in advance.

Canada has clarified what a tokenized deposit is, but Canadian banks still need to demonstrate that such a deposit can settle reliably beyond the issuing bank’s own system.

Original report