• Canada’s finance regulator, the Office of the Superintendent of Financial Institutions (OSFI), has proposed new capital regulations for banks and insurers dealing with cryptocurrencies.
• The rules aim to reduce risk and promote transparency by requiring an institution’s exposure to crypto-assets to 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, in line with the Basel Committee on Banking Supervision’s suggestions from December 2022.

Canada Proposes Capital Requirements for Crypto Assets

Canada’s finance regulator has proposed new capital requirements for banks and insurers dealing with cryptocurrencies. The Office of the Superintendent of Financial Institutions (OSFI) seeks to reduce risk and promote transparency in the cryptocurrency market through these guidelines.

Two Groups of Crypto Assets

The proposed regulations require institutions‘ crypto-asset exposures to be divided into two groups: tokenized traditional assets and stablecoins, and unsupported cryptocurrencies. Banks must adhere to a cap of no more than 1% exposure for unsupported crypto assets, in line with the Basel Committee on Banking Supervision’s suggestions from December 2022.

Tokenized Traditional Assets

The OSFI provides an illustration demonstrating how banks should balance risk between tokenized versus conventional assets. With regards to determining management of credit , market, and liquidity risk, a tokenized corporate bond kept within a bank’s banking book will be subject to the same risk weight as a non-tokenized corporate bond maintained within this book. However, exceptions exist – as tokenized assets may have different market liquidity characteristics than their non-tokenized counterparts.

Basel Committee Suggestions

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. This organization aims at strengthening global banking standards so that any instability in one country does not cause ripples throughout other countries or economies around the world.

Conclusion

In response to global scrutiny towards digital currencies, Canada has sought out ways to ensure safety when it comes cryptocurrency investments through increased regulation via capital requirements set forth by its financial regulator – OSFI. These rules intend on promoting transparency while reducing risks associated with such investments; providing stricter guidelines that must be adhered by banks offering services involving virtual currency holdings or transactions.

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