• Canada’s Office of the Superintendent of Financial Institutions (OSFI) has proposed new capital regulations for banks and insurers dealing with cryptocurrencies.
• The proposed guidelines provide a streamlined, comprehensive approach, with provisions for an institution’s exposure to crypto-assets.
• The specifics for guidelines on crypto-asset exposure were drafted as an update to suggestions made by the Basel Committee on Banking Supervision in December 2022.
Canada’s Financial Regulator Proposes Rules for Crypto Exposure
Canada’s finance regulator has proposed capital requirements for cryptocurrency assets, aiming to reduce risk and promote transparency within the growing digital currency space. The Office of the Superintendent of Financial Institutions (OSFI) has issued draft guidelines that provide a streamlined approach with provisions for an institution’s exposure to crypto-assets. This move is in response to increased scrutiny of cryptocurrencies globally, and follows similar suggestions made by the Basel Committee on Banking Supervision in December 2022.
Two Categories of Crypto Assets
Per OSFI, classification determinations require ongoing assessment, and crypto-assets should be divided into two groups; tokenized traditional assets and stablecoins, and unsupported cryptocurrencies. Banks are required to have an exposure cap of no more than 1% for unsupported crypto assets. Tokenized assets may also have different market liquidity characteristics than non-tokenized assets.
Crypto Asset Risk Management For Banks And Insurers
The new rules outline how banks should balance the risk associated with tokenized versus conventional assets when managing credit, market and liquidity risks. A tokenized corporate bond kept in the banking book will be subject to the same risk weight as a non-tokenized corporate bond maintained in the banking book but exceptions can be made depending on market liquidity characteristics.
Aligning With Global Standards
The updated guidelines from OSFI are largely focused on two sectors: banks and insurers dealing with cryptocurrencies . These updates align with global standards set by organizations such as BIS_org , which provides international banking standards specific to crypto asset exposures .
Providing Feedback On Proposed Changes
OSFI is currently seeking feedback from industry stakeholders before these regulations become official policy . Those interested can share their feedback online through their website or social media channels .