Canadian Bank Regulator Details Crypto Liquidity, Backing Rules

Canada's Office of the Superintendent of Financial Institutions (OSFI), the nation's primary bank and insurance company regulator, directed entities under its supervision to limit how much exposure they have to cryptocurrencies under interim guidance published Thursday.

According to the guidance, OSFI categorizes cryptos as either Group 1 or Group 2 assets. Group 1 represents traditional assets that confer rights and obligations. Anything else is a Group 2 asset. Regulated entities need to notify OSFI if their total gross positions exceed 1% of their capital and if their total net short positions exceed 0.1% of their capital.

"The scope of this advisory is limited to the capital and liquidity treatment of a FRFI’s exposures to crypto assets. The advisory does not address other issues, including whether a FRFI is permitted under the Bank Act, Insurance Companies Act or Trust and Loan Companies Act to issue any particular crypto asset, or to acquire or hold a controlling or substantial investment in entities that engage in this activity," the guidance said. "This advisory sets out OSFI’s expectations as to when FRFIs should notify their lead supervisor if they intend to have exposures to cryptoassets."

If an entity does want to conduct other crypto-related activities, it needs to contact its supervisor at OSFI and share information as needed, the regulator said.

Thursday's publication marks the first major federal crypto rules for banks issued by a Canadian regulator. It comes the same week the U.S. Federal Reserve and the European Central Bank published similar guidance for regulated entities under their respective purviews.

Like the OSFI's guidance, the Fed and the ECB both directed supervised entities to notify the regulators in writing if the banks wished to engage with crypto.