Canada’s Draft Stablecoin Rules Cap Redemption Fees at 1% and Ban Yield

Draft stablecoin rules from Canada set a 1% cap on redemption fees and maintain a ban on paying holders interest.

Ottawa initiated a 60-day consultation period for draft regulations. These rules mandate one-to-one reserves and prompt redemption from stablecoin issuers, while preserving the prohibition on compensating holders with interest.

The proposal, published in the Canada Gazette, requires that every coin be backed one-to-one by reserves. These reserves must be limited to cash and government debt maturing in three months or less, plus money market funds holding only such assets.

These reserves must be held by a Canadian custodian in segregated accounts, ensuring creditors cannot access them if the issuer faces bankruptcy. Holders can redeem any amount within three business days, with fees restricted to a maximum of 1%.

Issuers are prohibited from paying interest for merely holding a coin. Any arrangement allowing users to earn yield from holding the token, including sharing issuer income, is considered an indirect payment.

“These prohibitions are intended to distinguish stablecoins from financial products that compete directly with bank deposits or other interest-bearing instruments,” the notice states. Issuers may retain earnings from their reserves, provided the reserves remain at least equal to the outstanding coins.

The draft rules also forbid issuers from presenting a coin as a bank deposit or claiming government guarantee or deposit insurance. Furthermore, complaints must receive acknowledgment within seven days and resolution within 30 days.

The Bank of Canada will supervise the issuers. Penalties for violations range up to C$1 million for serious infractions, escalating to C$10 million for "very serious" ones, such as failing to maintain sufficient reserves or redeeming at par value.

The notice anticipates that five issuers and approximately 30 other payment entities, including crypto platforms holding customer coins, will fall under Bank of Canada oversight. The government intends for the proposed Regulations to become effective in fall 2027.