Hassan Maishera
TL;DR
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Canada’s financial regulator wants stricter guidelines for crypto asset exposure.
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The regulator wants banks and insurers to be careful when dealing with cryptocurrency assets.
Canada Could Impose Strict Guidelines For Crypto Exposure
The Office of the Superintendent of Financial Institutions (OSFI) has proposed new guidelines that would ensure banks and insurers take minimal risk when it comes to dealing with cryptocurrency assets.
The guideline will advise banks and insurers on capital and liquidity risks when dealing with crypto-assets. The regulatory agency wants the new rules to reflect an evolving risk environment and international developments.
According to the OSFI, the guidelines come in two parts. The first part is for banks while the second one is for insurers. The OSFI stated that;
"Today, OSFI announced two draft guidelines, one for federally regulated deposit-taking institutions and another for insurers, on the regulatory capital treatment of crypto-asset exposures."
According to the proposal, crypto assets would be categorized into two broad groups. The first group is for tokenized traditional assets and stablecoin while the second group will represent unbacked crypto assets. Banks would be required to have an exposure limit of no more than 1% for unbacked crypto assets.
The guideline stated that;
"A tokenized corporate bond held in the banking book will be subject to the same risk weight as the non-tokenized corporate bond held in the banking book. A tokenized asset may have different market liquidity characteristics than the traditional, non-tokenized, asset."
Banks are also advised to assess whether crypto-asset collateral can be liquidated in a way that meets legal certainty requirements.
The OSFI said the new guideline proposal was done as an update to proposals released by the Basel Committee on Banking Supervision in December 2022. The regulatory agency added that;
“They have been updated to reflect the Canadian context and the industry for which the guideline has been developed, i.e. banking or insurance. The banking guideline reflects the December 2022 BCBS banking standard and the insurance guideline incorporates the relevant parts of the BCBS standard with adjustments to meet the specific context of the insurance industry."
Canada has taken a tougher stance on cryptocurrencies since FTX’s collapse in November 2022. The tough regulatory environment saw cryptocurrency exchanges Bybit and Binance exit the Canadian market earlier this year.
