Canada’s Stablecoin Rulebook Takes Shape as Yield Ban Stays and Tougher Rules Loom

Canada has launched a 60-day public consultation on proposed stablecoin regulations that would restrict issuer-paid yield, require fully backed reserves and establish redemption standards for fiat-backed tokens issued by non-financial institutions.

The Department of Finance published the draft regulations in the Canada Gazette on October 24, inviting feedback until December 23, 2026. The proposal is intended to implement the country’s Stablecoin Act and establish requirements for issuers operating in Canada, including registration with the Bank of Canada.

If adopted, the rules would require stablecoin issuers to maintain reserves equal to the value of their outstanding tokens, hold those assets with qualified Canadian financial institutions and redeem tokens within three business days of a request. Redemption fees would be capped at 1% of the value being redeemed.

The government expects the regulations to take effect in fall 2027, giving the consultation a role in shaping how Canada’s stablecoin framework will operate.

Canada’s Draft Rules Maintain Restrictions on Stablecoin Yield

One of the proposal’s central provisions is a ban on stablecoin issuers paying interest or yield to holders simply for owning or retaining their tokens. The restriction is intended to discourage users from treating payment stablecoins as interest-bearing investments rather than instruments for transactions.

However, the draft distinguishes between rewards tied to holding a stablecoin and incentives linked to its use. Transaction-based rewards may remain permissible, depending on how the arrangement is structured.

That distinction has drawn attention from industry participants concerned that a broad yield prohibition could also affect loyalty schemes and other incentives designed to encourage payments.

In a September 8 pre-budget submission, the Canadian Web3 Council called for clearer language allowing usage-based rewards, merchant rebates and loyalty programs. The industry group argued that incentives linked to actual transactions should be treated differently from payments made simply for holding a token.

The consultation gives stakeholders an opportunity to address how the proposed restrictions should apply in practice.

Reserve Safeguards and Redemption Requirements Take Center Stage

The proposed framework also sets requirements for how stablecoin reserves must be held and protected.

Issuers would need to maintain one-to-one backing for their outstanding tokens, with reserve assets held by eligible Canadian-domiciled custodians. The assets would have to remain separate from the property of both the issuer and the custodian, protecting them from claims by other creditors if either party becomes insolvent.

The draft also requires issuers to redeem stablecoins at par, with no minimum redemption amount specified. They would have to liquidate the relevant reserves and initiate the corresponding fiat transfer within three business days of receiving a redemption request.

Fees for redemption could not exceed 1% of the value of the tokens being redeemed.

These provisions are designed to clarify what holders can expect when converting stablecoins back into traditional currency, while reducing the risk that reserve assets become unavailable during an issuer’s insolvency.

Foreign Stablecoin Issuers Could Also Fall Under the Rules

The proposed framework is not limited to Canadian companies. According to the Department of Finance, it would cover domestic and foreign non-financial institutions that make fiat-backed stablecoins available to Canadians, whether directly or through intermediaries.

The draft does not limit its scope to tokens pegged to the Canadian dollar. Stablecoins referencing other fiat currencies could also fall within the framework if they meet the relevant conditions.

Issuers would face registration requirements covering areas such as corporate ownership, financial condition, technology and compliance with the Stablecoin Act. Ongoing disclosure obligations would also apply, including information certified by an accountant and supported by a legal opinion.

The Bank of Canada would be responsible for registering issuers, supervising compliance, monitoring issuance and redemption risks, and taking enforcement action where necessary. The Department of Finance is leading the development of the regulations, while the central bank will administer the issuer framework.

Canada’s 2025 budget allocated C$10 million over two years, beginning in 2026, to support the framework’s administration. The government anticipated annual costs of C$5 million, to be recovered from regulated issuers.

Canada’s Framework Reflects a Wider Push for Stablecoin Regulation

Canada’s consultation comes as major jurisdictions work to establish clearer rules for fiat-backed digital currencies.

In the United States, the GENIUS Act is scheduled to take effect on January 18, 2027. The framework includes reserve, redemption, custody and supervision requirements, alongside a restriction on issuers paying interest or yield solely in connection with holding, using or retaining a payment stablecoin.

US regulators have also distinguished between prohibited holding-based yield and certain transaction-related rewards, with the treatment of individual arrangements depending on their specific terms.

In the European Union, the Markets in Crypto-Assets Regulation (MiCA) already provides a framework for crypto-asset issuers and service providers. European regulators have also been addressing how exchanges should handle stablecoins that do not comply with the bloc’s rules.

Canada’s proposed regulations similarly aim to establish a defined set of obligations for stablecoin issuers, while taking account of the challenges faced by companies operating across multiple jurisdictions. The Department of Finance has said the approach is intended to support consistency with international frameworks and reduce the regulatory burden on multi-jurisdictional issuers.

Canadian Banks Explore Tokenized Deposits Alongside Stablecoin Rules

The regulatory debate is unfolding as Canadian financial institutions explore other forms of digital money.

Bank of Montreal, CIBC, National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Bank have been involved in a project exploring tokenized Canadian-dollar deposits. The initial phase focuses on transfers between participating financial institutions, with connections to other digital asset programs expected to follow in later stages. The banks have not provided a commercial launch timetable.

Tokenized deposits differ from stablecoins because they represent liabilities of the issuing bank, corresponding to money held with that institution. Canada’s Office of the Superintendent of Financial Institutions has stated that digitizing a deposit does not change its legal character.

Meanwhile, the Canadian-dollar stablecoin CADD secured institutional custody support from Anchorage Digital in May 2026. Tetra Digital Group, the token’s issuer, said the stablecoin is backed one-to-one by Canadian dollars held at a licensed Canadian trust company and had received approval from Alberta regulators.

These initiatives illustrate the range of approaches being explored for digital payments, from privately issued stablecoins to tokenized bank deposits.

Consultation Will Shape Canada’s Stablecoin Framework Ahead of 2027

The consultation remains open until December 23, leaving industry participants, financial institutions and other stakeholders with an opportunity to comment on the proposed requirements before the government finalizes the rules.

The main questions concern how the yield prohibition will be applied, which reserve arrangements will qualify, how redemption protections will work and what obligations foreign issuers must meet when serving Canadian users.

The government is aiming to bring the regulations into force in fall 2027. Until then, the final scope of the requirements will depend on the outcome of the consultation and the regulations ultimately adopted.

For stablecoin issuers, the proposal signals a move toward more formal oversight of reserves, redemptions and operational practices. For users, the framework is intended to clarify the protections attached to fiat-backed tokens, while leaving open the question of how restrictions on holding-based rewards will affect the products and incentives available in the Canadian market.