Canadian Regulator Proposes Rules for Crypto Exposure: Reduce Risk, Promote Transparency

• Canada’s Office of the Superintendent of Financial Institutions (OSFI) has proposed new capital regulations for banks and insurers dealing with cryptocurrencies.
• The proposed guidelines provide a streamlined, comprehensive approach to crypto-asset exposure, with provisions for an institution’s risk management.
• The rules are largely focused on tokenized traditional assets and stablecoins, as well as unsupported cryptocurrencies.

OSFI Proposes Capital Regulations for Crypto Exposure

Canada’s Office of the Superintendent of Financial Institutions (OSFI) has proposed new capital regulations for banks and insurers dealing with cryptocurrencies. The rules aim to reduce risk and promote transparency, while providing a streamlined, comprehensive approach to crypto-asset exposure.

Breaking Down Crypto Asset Risk Management

The OSFI outlines that classification determinations for crypto-assets require ongoing assessment, and should be divided into two groups: tokenized traditional assets and stablecoins, as well as unsupported cryptocurrencies. Banks are required to have an exposure cap of no more than 1% for unsupported crypto assets. Tokenized corporate bonds kept in the banking book will be subject to the same risk weight as a non-tokenized corporate bond maintained in the banking book; however, exceptions may apply depending on market liquidity characteristics.

Aligning With Basel Committee Suggestions

The specifics for guidelines on crypto-asset exposure were drafted as an update to suggestions made by the Basel Committee on Banking Supervision in December 2022. OSFI aligns with these suggestions which focus on strengthening standards around capital requirements related to crypto asset exposures by banks.

Providing Further Guidance

In addition to proposing changes regarding capital requirements related to crypto asset exposures, OSFI also provides further guidance around separation from other activities within trading books, disclosure frameworks surrounding credit risks incurred when lending against tokens or collateralizing supported digital currencies or tokens, and stress testing scenarios related to cryptocurrency prices or volatility events involving crypto assets held by banks or insurers .

Share Your Feedback

OSFI encourages feedback from stakeholders so that it can ensure its updated framework properly addresses any risks associated with financial institutions‘ involvement in cryptocurrency activities before it is finalized sometime later this year.