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After two deadline extensions, new stablecoin listing rules are set to go live in Canada and, so far, only one firm has committed to compliance with the new regime.
On December 31, 2024, the Canadian Securities Administrators (CSA) will introduce new listing rules that are designed to ensure a minimum standard of protection for users of fiat-backed stablecoins.
After the deadline has passed, registered trading platforms, and those holding a pre-registration undertaking (PRU), will no longer be allowed to offer stablecoins that do not comply with the CSA framework.
The new rules were first published in October 2023, and were scheduled to go live in April 2024. Following engagement with firms, the deadline was later extended to October 2024, and finally to December 2024.
The framework provides a set of interim terms and conditions that issuers and trading platforms must meet to continue offering Canadian or US dollar stablecoins for purchase or deposit.
It also leaves open the possibility that some stablecoins may be subject to securities laws, and may require further oversight and regulatory consideration in future.
What’s in the new rules?
The CSA framework is focused on ensuring that stablecoin issuers meet a minimum standard of financial health, stability and transparency.
Issuers must ensure that their stablecoin is fully backed with reserve assets that are denominated in the same fiat currency (only Canadian dollar or US dollar stablecoins are permitted).
Reserve assets must be measured at fair value using Canadian generally accepted accounting principles (GAAP), and must be held either by a qualified custodian or trust company.
Reserves must also be held separately from the issuer’s other assets, and must not be pledged as collateral for other purposes.
The CSA framework authorises issuers to use a number of low-risk asset types as reserves.
These include cash, Canadian or US government bonds (with a term to maturity of 90 days or fewer), and money market funds that are authorised and regulated in Canada or the US.
Other asset types also may be permissible, but must be consented to in writing by the principal regulator of the trading platform where the stablecoin will be offered.
Transparency is key
The CSA’s rules on transparency require issuers to publish a range of information about the make-up of the stablecoin, with a view to ensuring that users and regulators have a clear view of its risks.
Issuers must publish, at least once a day, the number of all outstanding units of stablecoin and their aggregate nominal value. The value of all outstanding stablecoins must be at least equal to the value of reserves.
Further, they must disclose the “key features and risks” of the stablecoin, alongside the names and experience of the persons or companies involved in the issuance of the stablecoin or custody of its reserves.
If any of these persons or companies also holds the stablecoin, the number of units held must be disclosed at least once a month.
Within 45 days of the first issuance, and then at the end of each month, an assurance report from a Canada- or US-certified public accountant must be published, attesting to the value and stability of reserves.
Similarly, issuers must publish an annual financial statement showing income, cash flows and changes in equity.
Finally, issuers must publish a written policy that makes clear the redemption rights of stablecoin holders and any fees they are subject to.
Circle becomes first compliant stablecoin issuer
Last week, Circle, issuer of USDC, announced that it has become the first stablecoin issuer to commit to compliance with the CSA’s new regime.
In a statement, Circle included a link to an undertaking addressed to the CSA and the Ontario Securities Commission (OSC), the principal regulator of Circle’s Canadian subsidiary.
The undertaking makes clear that Circle will abide by the terms and conditions set out in the CSA rules, and that registered trading platforms that currently offer USDC may continue to do so after December 31, 2024.
Dante Disparte, chief strategy officer and head of global policy at Circle, said the CSA’s “proactive approach” will be important in reinforcing the integrity of Canada’s digital asset markets.
“Circle continues to engage with Canadian authorities in their development of a regulated market for global stablecoins, which has the potential to bring significant efficiency gains to Canadian cross-border, retail and institutional settlement systems,” the company said.
“This includes cheaper settlement of payment transactions, increased consumer protections, reduced settlement risk and increased payments competition.”
