Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), has put forward a proposal for stringent new guidelines concerning the exposure of banks and insurers to crypto assets. The guidelines aim to address the capital and liquidity risks associated with dealing in cryptocurrencies and reflect the evolving risk environment and international developments.
The proposed regulations are split into two parts, one for banks and the other for insurers. OSFI stated that the guidelines would cover the regulatory capital treatment of crypto asset exposures for federally regulated deposit-taking institutions and insurers.
To classify crypto assets, the proposal suggests two broad groups: one for tokenized traditional assets and stablecoins, and the other for unbacked crypto assets. Under the guidelines, banks are advised to limit their exposure to unbacked crypto assets to no more than 1%.
Furthermore, the proposal outlines how banks should consider the risk weighting of tokenized and traditional assets, making it clear that tokenized assets may have different market liquidity characteristics than their non-tokenized counterparts.
Addressing the issue of collateral, the guidelines advise banks to assess whether crypto-asset collateral can be liquidated in a manner that meets legal certainty requirements.
The OSFI indicated that these detailed guidelines were developed as an update to proposals by the Basel Committee on Banking Supervision from December 2022, adapted to suit the Canadian context and the specific needs of the banking and insurance industries.
The proposed guidelines are now open for consultation until September 20, with the aim of putting them into effect in the first quarter of 2025. The proposed measures are part of Canada’s efforts to strengthen the regulatory framework around crypto assets and enhance the stability of the financial system.