Canada Proposes Stablecoin Rules: 1% Redemption Fee Cap and No Yield

Preface

Canada has proposed a regulatory framework for stablecoins, digital tokens designed to maintain a steady value, often at one U.S. dollar. Published in the Canada Gazette on October 24, the draft rules address how issuers must back tokens, where reserves must be held, and how holders can redeem them. The proposal also prohibits interest or yield for simply holding a stablecoin. These requirements are intended to clarify what holders can expect if an issuer fails, including the timing and cost of getting their money back. The draft opens a 60-day public comment period and is targeted to take effect in fall 2027. The Bank of Canada would register and supervise issuers. At the center of the proposal is a distinction between stablecoins used for payments and products that compete with bank deposits.

Lazy bag

Canada’s draft rules would require stablecoin issuers to maintain one-to-one reserves in eligible assets and keep those reserves with Canadian custodians in protected, separate accounts. Holders could redeem any amount within three business days, with fees capped at 1%. Issuers could not pay yield for holding a coin, directly or indirectly, although rewards tied to using one would remain permitted. The Bank of Canada would supervise issuers, and penalties could reach C$10 million for very serious violations. Comments are open for 60 days, and the rules are targeted to take effect in fall 2027. The proposal combines redemption safeguards with a strict ban on holding-based returns.

Main Body

Canada’s proposed stablecoin regulations set out requirements for companies that issue digital tokens intended to maintain a stable value. The draft, published in the Canada Gazette on October 24, would require issuers to hold reserves equal to the total value of coins in circulation. In practical terms, the framework calls for one dollar of eligible reserve assets for every dollar represented by outstanding stablecoins. The proposal is meant to establish clear conditions for backing, redemption, and supervision rather than leave those questions solely to the policies of individual issuers.

The reserve rules limit eligible backing assets to cash and government debt maturing in three months or less. Money market funds would also qualify, but only if they hold those same types of short-term assets. These restrictions focus reserves on assets the draft treats as relatively liquid and straightforward to value. Issuers would have to ensure that reserves remain at least equal to the coins outstanding, including when the reserves generate income or when the number of tokens in circulation changes.

Where reserves are held is another central element. The draft requires issuers to place them with a Canadian custodian in separate accounts. Those accounts must be structured so that creditors cannot reach the reserve assets if an issuer becomes bankrupt. The separation is intended to distinguish assets backing holders’ coins from the issuer’s other property and obligations. For holders, the rules therefore address not just the amount of backing, but also the location and legal separation of the funds meant to support redemption.

Holders would be able to request redemption of any amount within three business days. The fee charged for redemption could not exceed 1%. These terms establish a stated service timeframe and a ceiling on the direct cost of exchanging a stablecoin for money. They also clarify the outcome the framework expects: the issuer must redeem at par value, rather than impose a discount that leaves holders with less than the value represented by their coins. The proposal identifies inadequate reserves or failure to redeem at par as examples of serious compliance concerns.

The draft also prohibits issuers from paying interest to people simply for holding a stablecoin. The restriction is not limited to a direct payment made by the issuer. An arrangement that enables a holder to earn yield from holding the coin would count as an indirect payment, including sharing income earned by the issuer. This broader approach is intended to prevent the no-interest rule from being bypassed through an intermediary or a differently named reward program.

However, the proposal distinguishes holding-based yield from rewards connected to use. Rewards tied to using a coin, rather than merely keeping it, would remain allowed. The notice explains that the prohibitions are intended to distinguish stablecoins from financial products that compete directly with bank deposits or other interest-bearing instruments. Issuers could still retain income earned on reserve assets, provided that the reserves remain at least equal to the stablecoins outstanding. This means the draft restricts how issuers and third parties can pass reserve-related returns to holders without requiring issuers to surrender all earnings from their reserves.

The proposal would also limit how issuers describe their products. They could not present a stablecoin as a bank deposit, claim that it has deposit insurance, or suggest that it carries a government guarantee. These restrictions address the possibility that users might confuse a privately issued token with a bank account or an obligation backed by public insurance. The framework therefore pairs rules about the assets behind a coin with limits on claims about the protections it offers.

Customer complaint handling is included as well. Issuers would need to acknowledge complaints within seven days and resolve them within 30. These deadlines establish expectations for responding to concerns, alongside the rules governing reserves and redemption. Taken together, they cover several points in a holder’s relationship with an issuer: what supports the token, how it can be converted, what it costs to do so, what the issuer may say about protections, and how complaints are handled.

The Bank of Canada would register and supervise stablecoin issuers under the proposed framework. The notice assumes there would be five issuers and about 30 additional payment companies subject to oversight. That wider group includes crypto platforms that hold customers’ coins in wallets. Supervision would therefore extend beyond the companies that create stablecoins to certain businesses that provide related payment or custody services, as described in the proposal.

Penalties would vary according to the seriousness of a violation. The notice describes fines of up to 1 million Canadian dollars for serious violations and up to 10 million Canadian dollars for “very serious” ones. Examples of very serious violations include failing to maintain adequate reserves or failing to redeem coins at par value. These maximum penalties are intended to make the financial consequences of non-compliance proportionate to the importance of the obligations, particularly the backing and redemption requirements.

The proposal follows the Stablecoin Act, which became law on March 26, 2026, after Ottawa announced its plan in its November budget. The draft regulations provide more detail about how the framework would operate. The Bank of Canada’s payments, supervision and oversight executive director, Ron Morrow, said at an Ottawa conference in September 2025 that there was a pressing need for faster, cheaper, more transparent, and more accessible cross-border payment services. That policy context helps explain why stablecoins are being considered as payment instruments, even as the proposal seeks to distinguish them from interest-bearing financial products.

The Canadian discussion follows a related debate in the United States. President Donald Trump signed the GENIUS Act, the U.S. stablecoin law, on July 18, 2025. That law also bars issuers from paying holders interest. Debate has since focused on whether crypto platforms should be allowed to offer yield to users. Banks have opposed such arrangements, arguing that deposits could move toward crypto products. The disagreement contributed to the failure of the Clarity Act in the Senate, a separate proposal intended to set broader rules for the crypto market.

Banking groups opposed the Clarity Act because they believed it did not sufficiently close what they regarded as a loophole in the GENIUS Act. As described in the source notice, that law currently allows platforms such as Coinbase to offer yield to customers holding USDC stablecoins in their accounts. Canada’s draft takes a broad approach to indirect yield: arrangements that let someone earn from holding a coin, including sharing issuer income, would be prohibited. The comparison illustrates how rules on stablecoin rewards can affect the boundary between payment services and deposit-like products.

Canada’s public comment period lasts 60 days, until roughly December 23. The notice states that the intention is for the proposed regulations to come into force in fall 2027. Until the consultation concludes and the regulations take effect, the provisions remain a proposal. The comment process gives interested parties an opportunity to provide feedback on the reserve standards, redemption conditions, restrictions on yield, supervision, and penalties before the rules are finalized.

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