Canada’s Department of Finance has opened a 60-day public consultation on proposed regulations for fiat-backed stablecoins issued by non-financial institutions. The draft, published in the Canada Gazette on October 24, retains a prohibition on issuer-paid interest or yield while permitting rewards linked solely to transactions. Comments are due by December 23, 2026.

The rules are required to bring the Stablecoin Act into force. That legislation received royal assent earlier in 2026 and applies to non-bank issuers. Once effective, these entities would need to register with the Bank of Canada before issuing stablecoins available to Canadians, whether denominated in Canadian dollars or foreign currencies.

Core Requirements for Reserves and Redemptions

Under the proposal, issuers must maintain reserves equal in value to outstanding stablecoins at the end of each day. Those assets must be held with qualified Canadian financial institutions, including banks, credit unions and trust companies. Reserves are to remain separate from the issuer’s and custodian’s own property so that other creditors cannot access them in the event of insolvency.

Redemption must occur at par. Issuers would liquidate reserves and initiate the fiat transfer within three business days of a request. No minimum redemption amount would apply, and fees would be capped at 1 percent of the redeemed value.

The framework covers both domestic and foreign non-financial issuers that make stablecoins available to Canadian users, directly or indirectly. Banks and other prudentially regulated institutions remain subject to existing oversight regimes rather than the new Stablecoin Act rules.

Yield Prohibition and Allowed Transaction Rewards

The draft maintains the statutory ban on payments of interest or yield connected with holding a stablecoin. The restriction extends to arrangements involving third parties, including income-sharing deals that encourage holders to keep larger balances or retain tokens for longer periods.

Rewards tied only to transactions or usage would remain permitted. The Department of Finance stated that such incentives are allowed to encourage adoption of the stablecoin. Industry groups had sought clearer confirmation that activity-based programs fall outside the ban.

Banking representatives have supported a broad prohibition. A spokesperson for the Canadian Bankers Association previously stated that the group firmly supports the Stablecoin Act’s explicit prohibition on yield, both direct and indirect. Some Canadian platforms, including Coinbase Canada, currently offer rewards on eligible tokens under provincial securities conditions that require risk disclosures and clarification that the funds lack deposit insurance.

Timeline, Oversight and International Alignment

The government intends for the regulations to come into force in fall 2027. After that date, non-financial issuers would need to apply for registration with the Bank of Canada. The central bank’s responsibilities would include registering issuers, supervising compliance, monitoring issuance and redemption risks, and taking enforcement action. Continuing disclosures would require accountant-certified information and supporting legal opinions.

Officials noted efforts to align the framework with rules in the United States and other jurisdictions to reduce the regulatory burden on multi-jurisdictional issuers. In the United States, the GENIUS Act framework is scheduled to take effect in January 2027 and similarly prohibits issuer-paid interest or yield solely connected with holding a payment stablecoin.

Canada’s 2025 budget allocated approximately $7.3 million over two years starting in 2026 for administration of the regime, with annual costs expected to be recovered from regulated issuers.

Parallel Developments in Tokenized Deposits

While the stablecoin rules advance, Canada’s largest banks are developing tokenized deposit products. Bank of Montreal, CIBC, National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Bank are participating in a shared system focused initially on transfers of tokenized Canadian-dollar deposits among the institutions. The Office of the Superintendent of Financial Institutions has stated that digitizing a deposit does not change its legal character as a bank liability.

A Canadian-dollar stablecoin known as CADD, issued by Tetra Digital Group and backed one-to-one by Canadian dollars held at a licensed trust company, has also received regulatory approval in Alberta and institutional custody arrangements.

The consultation period provides stakeholders an opportunity to comment on reserve custody, redemption rights, issuer obligations and the precise scope of permitted rewards before the rules are finalized.