Canada’s financial regulator has proposed strict new guidelines for bank and insurance companies with exposure to the crypto sector. The regulator has been cautious of crypto entities and intends to regulate the sector efficiently and combat increasing crimes.
On Thursday, the Office of the Superintendent of Financial Institution’s (OSFI), in Canada released guidelines advising banks and insurers on capital and liquidity risks when dealing with crypto-assets. The OSFI said the new rules “reflect an evolving risk environment and international developments.”
Reportedly, the regulatory guidelines come in two parts — one for banks, the other for insurers. The regulator said:
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.
The regulator’s proposal stated that crypto assets should be categorized into two broad groups — one category for tokenized traditional assets and stablecoins, and the other for unbacked crypto assets.
According to the guidelines, banks should have an exposure limit of no more than 1% for unbacked crypto assets. Adding an example of how banks should consider the risk weighting of tokenized and traditional assets, the guidelines stated:
A tokenised 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.
However, the proposed regulation added that “a tokenized asset may have different market liquidity characteristics than the traditional, non-tokenized, asset.”
Further, the report addressed the speed with which creditors could take possession of crypto-asset collateral. Additionally, banks are advised to assess whether crypto-asset collateral can be liquidated in a way that meets legal certainty requirements.
The OSFI stated that it drafted the detailed guidance on crypto-asset exposure as an update to proposals released by the Basel Committee on Banking Supervision in December 2022. To this, the OFSI wrote that the rules are being updated to resonate with Canada’s vision for the financial sector. The regulator added:
The banking guideline reflects the December 2022 BCBS banking standard and the insurance guideline incorporate the relevant parts of the BCBS standard with adjustments to meet the specific context of the insurance industry.
After the OSFI consultation period ends on September 20, the guidelines are expected to come into effect in the first quarter of 2025. The recent guidelines align with previous promises of strictly monitoring the sector.
Throughout discussions that have taken place regarding the regulation of crypto, the regulator has highlighted the harms calling for increased invigilation. Additionally, in the beginning of the month, the Canadian Securities Administrators (CSA), had issued a set of guidelines governing staking and lending services for the crypto firms to comply.
