Canada opens bank stablecoin access, but strips deposit guarantees

Canada's Nov. 5 budget proposes requiring banks and other federally regulated financial institutions that issue stablecoins to do so through separate subsidiaries, bringing those issuers under the Stablecoin Act alongside nonbank issuers.

The proposed subsidiaries would be non-financial institutions regulated under the Act. Budget 2026 also proposes extending the framework to foreign financial institutions that are not prudentially regulated in Canada, with consistent treatment across issuers as its stated goal.

A stablecoin issued by a bank-owned company would still fall within a framework that separates covered tokens from publicly insured deposits.

The legislative annex proposes amending the Bank Act, Trust and Loan Companies Act, and Insurance Companies Act to prohibit federally regulated financial institutions from issuing stablecoins directly.

The existing Stablecoin Act excludes financial-institution issuers, subject to regulations. Routing issuance through a non-financial-institution subsidiary would bring that issuing entity within the stablecoin framework.

The Bank of Canada says its role under the Act will include registering non-financial institution issuers, supervising compliance, monitoring issuance and redemption risks, and taking enforcement action.

The planned foreign-institution extension targets institutions outside Canadian prudential supervision. The annex also proposes clarifying that stablecoin issuance is not deposit-taking for foreign banks and their affiliates covered by Part XII of the Bank Act.

The existing Act separately excludes central banks, and also lets the Bank of Canada Governor grant conditional exemptions where provincial or foreign rules are substantially similar.

What holders would receive

Once applicable, the Act's safeguards would require redemption at face value in the currency a stablecoin tracks.

It would also require reserves worth at least the outstanding face value, and qualified custody that segregates reserve assets and protects them from issuer and custodian creditor claims other than holders' redemption claims. Those duties remain subject to the Act's statutory and regulatory terms.

Sections 33 and 34 would prohibit covered stablecoins from being deposits, publicly deposit-insured instruments or government-guaranteed or backstopped instruments, and prohibit representations suggesting those features.

A bank parent's involvement would not convert the token into an insured savings balance.

The budget also promises continued engagement on stronger consumer protections if an issuer or custodian becomes insolvent.

The Act received royal assent on March 26, but its operating provisions take effect on dates set by order of the Governor in Council.

The Oct. 24 proposed-regulations impact statement identifies fall 2027 as the intended commencement window for the wider framework.