Canada Launches Consultation on Stablecoin Rules, Maintains Yield Ban

Canada opens consultation on draft stablecoin rules, keeps ban on yield payments

Canada’s Department of Finance has launched a 60-day public consultation on draft regulations for fiat-pegged stablecoins, maintaining a prohibition on issuers paying yield to token holders and setting out new requirements around reserves, custody, and redemptions.

The draft rules were published in the Canada Gazette on Oct. 24, with feedback due by Dec. 23. The regulations are designed to operationalize the Stablecoin Act passed earlier this year by establishing the conditions stablecoin issuers must meet to register with the Bank of Canada.

Under the proposal, non-bank stablecoin issuers would be required to hold reserves equal to the value of their circulating tokens on a 1:1 basis. Those reserves would need to be placed with qualified Canadian financial institutions, including banks, credit unions, and trust companies.

The draft also strengthens redemption protections. Customers would have to be able to exchange stablecoins for regular currency within three business days, and any redemption fee would be capped at 1%.

On yield, the proposal keeps Canada’s stance that issuer-funded returns should not be used to encourage larger balances or longer holding periods. However, it allows transaction-based rewards—incentives linked only to using the stablecoin for payments rather than to holding it as an interest-bearing asset.

The consultation comes amid pressure from Canada’s banking industry to restrict stablecoin yield. The Canadian Bankers Association has argued that interest-bearing tokens could pull funds from bank deposits, potentially reducing the money traditional institutions have available to lend. In June, spokesperson Natalle Begeron told The Logic that the group “firmly supports the Stablecoin Act’s explicit prohibition on yield, both direct and indirect.”

The draft framework is also intended to apply to foreign, non-financial issuers that serve Canadian users, regardless of which currency their stablecoin references, bringing cross-border offerings into the same set of obligations where applicable.

• Consultation period: 60 days, ending Dec. 23
• Reserves: 1:1 backing required for fiat-pegged tokens
• Reserve custody: must be held with qualified Canadian financial institutions for non-bank issuers
• Redemptions: fiat transfers initiated within three business days; fees capped at 1%
• Yield: banned for holding-based arrangements; transaction-only rewards permitted