Canada Opens 60-Day Consultation on Stablecoin Rules That Uphold the Yield Ban — And Canada's Banks Are Firmly Behind It

Canada's Department of Finance has opened a 60-day public consultation on the first detailed regulatory rulebook under the Stablecoin Act, the federal legislation that received Royal Assent in March 2026. The draft regulations, published in the Canada Gazette, Part I on October 24, maintain a complete prohibition on yield payments to stablecoin holders and require all non-bank issuers to register with the Bank of Canada and maintain full one-to-one reserves in segregated accounts at qualified Canadian financial institutions. The consultation closes December 23, 2026, with the framework expected to take effect toward late 2027. Banks are firmly supportive — and the reasons they give for backing the yield ban illuminate exactly why stablecoin regulation has become a flashpoint between the financial establishment and the crypto industry across every major economy.

Key Facts at a Glance

• 60-day public consultation opened October 24, 2026; closes December 23, 2026

• Published in the Canada Gazette, Part I — the formal channel for Canadian draft regulations before finalisation

• Draft rules implement the Stablecoin Act (Bill C-15), which passed Parliament and received Royal Assent in March 2026

• The yield ban is preserved in full: both direct interest payments and indirect returns are prohibited; transaction-based rewards remain permitted

• Non-bank issuers must register with the Bank of Canada, maintain full one-to-one reserves in the same currency as the token, hold reserves in segregated accounts at qualified Canadian financial institutions, and allow holders to redeem at par within three business days, with fees capped at 1%

• Monthly reserve reporting and tiered supervision fees apply to all registered issuers

• The Canadian Bankers Association explicitly supports the yield ban, citing disintermediation risk to the lending system

• Coinbase Canada holds Ontario Securities Commission approval to offer yields on eligible tokens — a provincial permission that the federal draft rules would supersede with a national standard

• USDC traded at $1.00 with a market cap of approximately $71.3 billion at publication (CoinPaprika, October 26, 2026); most circulating stablecoins remain pegged to USD not CAD

• Canada's six largest banks are separately exploring a tokenised deposit system; OSFI has stated tokenised deposits are not legally distinct from traditional deposits

• Tetra Trust Company launched CADD, Canada's first domestic Canadian-dollar stablecoin, in May 2026

The Legislative Background: From Bill C-15 to Rulebook

The draft regulations released for consultation are not a standalone policy proposal — they are the subordinate rules needed to make an already-enacted law operational. Understanding the legislative context is essential to reading the consultation correctly.

The Stablecoin Act passed through Canada's Parliament as Bill C-15 and received Royal Assent in March 2026. In Canada's constitutional system, Royal Assent is the formal approval given by the Governor General (acting on behalf of the monarch) that transforms an Act of Parliament into law. However, many pieces of federal legislation contain provisions that require separate regulatory instruments — orders, regulations, or rules — to specify the operational details before the law's requirements come into effect.

The Stablecoin Act established the framework: stablecoins used across provinces or internationally must operate within a federal oversight regime centred on the Bank of Canada. But the Act itself did not spell out exactly what registration requires, what reserves must consist of, how redemption must work, or what ongoing reporting obligations apply. Those operational details are what the draft regulations published on October 24 provide.

This two-stage approach — legislation first, regulations second — is standard Canadian legislative practice for complex financial regulatory frameworks. It allows Parliament to approve the policy direction while leaving technical specification to the regulatory process, which benefits from industry input through consultations like the one now underway.

The Canada Gazette, Part I publication signals that these are still draft regulations open to public comment. The final regulations, once comments are reviewed and addressed, will be published in the Canada Gazette, Part II — at which point they become legally binding. The government expects this timeline to produce a fully operational framework toward late 2027.

The Yield Ban: What It Prohibits and What It Permits

The most commercially and politically significant provision in the draft regulations is the prohibition on yield payments to stablecoin holders. The ban preserves the Stablecoin Act's original restriction in explicit detail, covering both direct and indirect returns.

What is prohibited:

• Direct interest payments on stablecoin balances — a stablecoin issuer cannot pay holders a percentage return simply for holding the token

• Indirect returns structured to achieve the same economic effect — issuers cannot circumvent the direct interest ban through rebates, bonus allocations, token top-ups, or similar mechanisms that effectively deliver a yield on outstanding balances

What remains permitted:

• Transaction-based rewards — rewards tied to specific activities like spending or using the token are explicitly allowed. This preserves the business model of programs that reward users for transacting with a stablecoin, similar to loyalty or cash-back programs on payment cards, without creating an interest-bearing instrument.

This distinction — between a return on a balance and a reward for a transaction — is not merely semantic. It reflects a genuine policy judgment about the regulatory and systemic risk implications of each model.

A stablecoin that pays interest on held balances begins to resemble a bank deposit in economically meaningful ways: it holds fiat currency in reserve, it pays a return to the holder, and it offers liquidity on demand. If the yield is competitive with bank deposit rates, it creates an incentive for depositors to move money out of bank accounts and into stablecoins — reducing the deposit base from which banks make loans. This is the disintermediation risk that underlies the Canadian Bankers Association's support for the yield ban.

A stablecoin that rewards transaction activity is more analogous to a payment card loyalty program. The reward is contingent on use, not on mere holding, and it does not create the same economic incentive to park savings in the stablecoin rather than a bank account.

The Canadian Bankers Association's Position: Disintermediation in Plain Language

The Canadian Bankers Association (CBA) made its support for the yield ban unambiguous in a statement released on October 24 — the same day the consultation opened. Spokesperson Nathalie Bergeron stated:

"[The association] firmly supports the Stablecoin Act's explicit prohibition on yield, both direct and indirect."

The CBA's stated rationale goes to the core of why traditional banking institutions have opposed yield-bearing stablecoins across multiple jurisdictions. When stablecoins pay interest on balances, they compete directly with bank deposits for retail and corporate savings. If a depositor can hold a USD-pegged stablecoin yielding 4% instead of a bank savings account yielding 2%, the rational economic choice is to move funds to the stablecoin.

At sufficient scale, this creates a systemic problem. Bank deposits are not simply stored money — they are the raw material for bank lending. A dollar in a bank deposit is typically deployed as approximately $8-$10 in loans (under fractional reserve banking at typical capital ratios), funding mortgages, small business loans, and corporate credit. A dollar in a stablecoin reserve, by contrast, is held in high-quality liquid assets (government bonds, Treasury bills) that generate a return for the issuer but do not enter the lending supply chain in the same way.

If stablecoins drew significant deposits away from banks and into stablecoin reserves, the lending capacity of the banking system would contract — potentially constraining credit availability and raising borrowing costs for households and businesses. This is not a theoretical risk: the CBA explicitly notes it "echoes concerns raised by banking groups in the United States about deposits moving into higher-yielding tokens."

The US concerns are real and current. In the ongoing American stablecoin regulatory debate, banking associations have lobbied hard for yield prohibitions precisely because the scale of potential deposit substitution — if USDC or a comparable stablecoin paid competitive interest on its $71 billion-plus in circulating supply — would be commercially material.

The Coinbase Canada Tension: Provincial Permission vs. Federal Rule

The draft regulations' yield ban creates a regulatory conflict that the consultation will need to address explicitly.

Earlier in 2026, Coinbase Canada received permission from the Ontario Securities Commission (OSC) — the provincial securities regulator for Canada's most populous province — to offer yields on eligible tokens, provided customers receive appropriate risk warnings. Under this provincial approval, Coinbase Canada has been operating a yield-offering service for qualifying clients in Ontario.

The draft federal regulations would override this provincial arrangement by establishing a single national standard for stablecoin issuers. A federal prohibition on yield — if adopted as proposed — would supersede the Ontario permission, requiring Coinbase Canada and any similar platforms to align their product offerings with the national framework rather than the provincial one.

This tension illustrates a broader challenge in Canadian stablecoin regulation: the country's federal structure means that provincial securities regulators have historically operated alongside (and sometimes in conflict with) federal financial regulators. Stablecoins, which can be classified as either payment instruments (federal jurisdiction) or securities (provincial jurisdiction depending on structure), sit at the intersection of these two regulatory domains.

The 60-day consultation period is presumably the mechanism through which Coinbase Canada, the OSC, and other interested parties will make their views known on how the federal-provincial regulatory relationship should be managed for yield-bearing digital assets.

Registration Requirements: What Non-Bank Issuers Must Demonstrate

The draft regulations establish detailed conditions for non-bank entities seeking to issue stablecoins in Canada. The registration process with the Bank of Canada is substantive, not merely administrative.

Structural disclosure: Applicants must describe their ownership structure, organisational design, technological infrastructure, and operational policies. This goes beyond filing corporate documentation — it requires issuers to demonstrate that their governance and technology are appropriate for operating a payment infrastructure that holds customer funds.

Financial condition evidence: Issuers must demonstrate their financial health, providing the Bank of Canada with visibility into their capitalisation, liquidity position, and ability to sustain operations. This requirement ensures the regulator can identify financially fragile issuers before they access the Canadian market.

Professional attestations: Statements from both a lawyer and a certified accountant confirming compliance with the applicable rules must be included. The requirement for dual professional attestation creates legal and professional accountability — both advisors face professional consequences if their attestations prove false.

Reserve demonstration: Issuers must demonstrate the ability to maintain reserves meeting the specific requirements outlined below.

Reserve Standards: Full Backing, Segregated, Same Currency

The reserve framework in the draft regulations is rigorous and specifically designed to prevent the reserve management failures that have caused stablecoin crises in the past.

One-to-one reserve ratio: Issuers must hold reserves equal in value to the total outstanding supply of circulating tokens. There is no fractional reserve model permitted — every token in circulation must have a full dollar equivalent held in reserve at all times.

Same-currency requirement: Reserves must be held in the same currency as the stablecoin. A Canadian-dollar stablecoin must hold Canadian-dollar reserves; a US-dollar stablecoin must hold US-dollar reserves. This eliminates the currency mismatch risk that has destabilised some stablecoin projects where reserve assets were denominated differently from the token.

High-quality liquid assets: Reserve assets must meet the definition of high-quality liquid assets — a standard borrowed from the Basel III banking framework that refers to assets that can be converted to cash quickly and without significant loss of value. In practice, this means government bonds, central bank reserves, and similar instruments, rather than corporate bonds, crypto assets, or illiquid instruments.

Segregated accounts at qualified institutions: Reserves must be held in segregated accounts — legally separate from the issuer's operating funds and other business assets — at qualified Canadian financial institutions. Segregation protects holders in the event of issuer insolvency: the reserves are not available to the issuer's general creditors and can only be used to meet redemption obligations to token holders.

Three-business-day redemption at par: Token holders have the right to redeem their stablecoins for the underlying fiat currency within three business days. Redemption must be at par — holders receive exactly the face value of their tokens, not a discounted market price. Redemption fees are capped at 1%, preventing issuers from creating a de facto discount through fee structures.

Ongoing Obligations: Monthly Reporting and Supervision Fees

Registration is not a one-time requirement. The draft regulations impose ongoing obligations that keep the Bank of Canada informed about reserve levels and financial condition:

Monthly reserve reporting: Issuers must submit monthly reports on their reserve balances. This cadence gives the Bank of Canada continuous visibility into whether reserves remain adequate, allowing early detection of reserve deterioration before it becomes a crisis.

Tiered supervision fees: Issuers pay ongoing supervision fees to fund the Bank of Canada's oversight of the stablecoin sector. The tiered structure means that larger issuers — with larger circulating supplies and therefore greater systemic importance — pay proportionally higher fees.

The Domestic Stablecoin Market: USD Dominance and the CADD Launch

The draft regulations are arriving in a stablecoin market that is overwhelmingly USD-denominated, even in Canada.

At the time of publication, USDC — one of the largest USD-pegged stablecoins — was trading at $1.00 with a market capitalisation of approximately $71.3 billion, according to CoinPaprika data from October 26, 2026. USDC and its main competitor USDT (Tether) dominate stablecoin transaction volumes globally and in Canada, driven partly by liquidity depth and partly by the US dollar's role as the world's dominant reserve currency.

Canada's domestic stablecoin market is far smaller. Tetra Trust Company, a Canadian crypto custody firm, launched CADD — a Canadian-dollar stablecoin — in May 2026. CADD's launch represents the first significant domestic alternative to USD-pegged stablecoins for Canadians seeking to transact in their home currency on digital rails. The draft federal regulations would apply to CADD and any future CAD-denominated stablecoin issuers, potentially shaping the competitive dynamics of a nascent domestic market.

The requirement that reserves be held in the same currency as the token has a specific practical implication for CADD and future CAD stablecoins: reserve assets must be Canadian-dollar instruments (Government of Canada bonds, Canadian bank deposits), not US Treasury bills or USD cash. This keeps reserve management within the Canadian financial system rather than adding exposure to foreign sovereign debt.

Tokenised Deposits: The Banks' Parallel Path

While the Stablecoin Act and its draft regulations govern non-bank stablecoin issuers, Canada's traditional banking sector is exploring its own version of digital currency through tokenised deposits.

In September 2026, Canada's six largest banks — the institutions collectively known as the "Big Six" — announced that they are exploring a tokenised deposit system. Tokenised deposits are digital representations of conventional bank deposits, held on a distributed ledger rather than in a traditional core banking system. They differ from stablecoins in their legal structure: because they are deposits at a regulated bank, they inherit the full protections of deposit insurance, regulatory capital requirements, and the central bank's lender-of-last-resort backstop.

The Office of the Superintendent of Financial Institutions (OSFI) — Canada's federal prudential banking regulator — has stated that tokenised deposits are not legally distinct from traditional deposits. This means they do not require separate legislation or registration frameworks; they operate under the existing Banking Act and its accompanying regulations.

The parallel development of tokenised deposits alongside the stablecoin regulatory framework creates a competitive dynamic that is explicit in the banking industry's support for the yield ban. If non-bank stablecoin issuers were permitted to pay yield, tokenised bank deposits would need to match those yields to remain competitive — compressing bank margins and potentially undermining the lending economics that the banking system depends on. By ensuring that stablecoins cannot pay yield under the federal framework, the banks preserve their competitive position in the digital payment currency space while pursuing their own tokenisation strategy.

What Happens Next: The Consultation and the Road to Late 2027

The October 24 to December 23, 2026 consultation period is the formal opportunity for stablecoin issuers, banks, fintech firms, consumer groups, and other stakeholders to comment on the draft regulations before they are finalised. Key questions likely to be raised include:

The yield-reward boundary: How precisely does the distinction between prohibited yield and permitted transaction rewards apply in practice? The rule is clear in principle but will require detailed guidance for issuers designing reward programs.

The federal-provincial relationship: How will the federal rules interact with existing provincial regulatory approvals like the OSC permission granted to Coinbase Canada? Will federal rules preempt provincial ones, and on what timeline?

The reserve asset definition: What specific instruments qualify as high-quality liquid assets for CAD and USD stablecoin reserves in the Canadian context, and will the framework accommodate any evolution in that definition?

The redemption mechanics: Will the three-business-day window prove adequate for all stablecoin use cases, particularly those in payment or settlement contexts where faster redemption may be expected?

International issuers: How does the registration requirement apply to foreign stablecoin issuers serving Canadian users — does a US-based USDC issuer need to register with the Bank of Canada?

Following the consultation, the Department of Finance will review submissions, publish a summary of input received, and finalise the regulations for publication in the Canada Gazette, Part II. The government's expected timeline puts this process concluding toward late 2027.

Canada in the Global Stablecoin Regulatory Context

Canada's draft framework shares structural features with the most rigorous stablecoin regimes globally while preserving the distinctly Canadian yield ban position.

The UK's incoming stablecoin regime under the Payment and Electronic Money Institution regulatory framework similarly requires reserve backing and oversight of non-bank issuers. Japan's Payment Services Act framework — under which JPYSC was launched in June 2026 — restricts stablecoin issuance to licensed trust banks and other regulated institutions, with comparable reserve requirements.

The EU's Markets in Crypto-Assets Regulation (MiCA) is perhaps the closest global parallel to what Canada is implementing: a comprehensive, mandatory framework with reserve requirements, redemption guarantees, and supervision fees. MiCA's treatment of yield is more nuanced — e-money tokens (the MiCA stablecoin equivalent) face restrictions on interest-bearing arrangements, though the framework's complexity has produced varied interpretations across EU member states.

The United States remains the most actively debated environment, where the GENIUS Act has established federal stablecoin oversight with its own yield provisions, while the OCC's recent trust bank approvals for stablecoin-adjacent businesses (including Circle for USDC) create a layered federal framework still being tested in practice.

Canada's position — a complete yield ban with an explicit transaction-reward carve-out, mandatory Bank of Canada registration, full segregated reserves, and a 2027 implementation target — represents one of the more conservative approaches among major economies. Whether that conservatism proves an advantage (financial stability and banking system protection) or a competitive constraint (limiting the product innovation available to Canadian stablecoin issuers) will likely become clearer as the global market for yield-bearing stablecoins develops in jurisdictions with different approaches.

Summary

Canada's draft stablecoin regulations, published for 60-day consultation on October 24, 2026, deliver on the Stablecoin Act's core architecture: a complete yield ban, mandatory Bank of Canada registration, full one-to-one reserves in segregated accounts, at-par redemption within three business days with fees capped at 1%, monthly reporting, and tiered supervision fees. The Canadian Bankers Association's explicit endorsement of the yield ban reflects the banking sector's concern that yield-bearing stablecoins would draw deposits into vehicles that don't support the lending system, a concern echoed in every major jurisdiction currently debating stablecoin regulation. The draft creates a direct conflict with the provincial-level permission the Ontario Securities Commission granted Coinbase Canada to offer yields on eligible tokens — a tension that submissions during the December 23 consultation close are likely to address directly. The framework takes effect toward late 2027, by which point Canada's six largest banks' tokenised deposit exploration may itself have reached a commercial stage, shaping the competitive environment into which the regulated stablecoin sector will launch.