Canada's bank rules could tilt tokenized money toward deposit tokens rather than stablecoins, with KPMG warning that some stablecoin structures may make balance-sheet business cases uneconomic.
The accounting and consulting giant said in an August report reviewed by The Coinformer that Canada's new Stablecoin Act doesn't govern stablecoin issuance by prudentially regulated financial institutions such as banks, leaving those institutions subject instead to rules from the Office of the Superintendent of Financial Institutions (or OSFI), which is Canada's federal bank regulator.
Under those rules, fiat-backed stablecoins can qualify as Group 1b crypto assets, a category for value-referenced tokens that meet requirements around redemption, reserves and other safeguards.
Banks holding Group 1b stablecoins must analyze and separately capitalize risks involving the issuer, reserve assets and intermediaries involved in redemption or settlement.
They must also conduct ongoing due diligence and test at least quarterly whether the token continues to maintain a stable relationship with its reference asset.
KPMG said stablecoins that fail to meet the necessary classification conditions can face sufficiently restrictive treatment to make "most balance sheet business cases untenable."
OSFI's own rules are somewhat more nuanced than that wording suggests. Crypto assets that don't qualify for Group 1 fall into Group 2a or Group 2b, with the harshest treatment, a full Common Equity Tier 1 capital deduction, applying only to Group 2b.
Tokenized deposits get an easier path
The contrast is different for tokenized bank deposits, digital representations of conventional deposits recorded on blockchain infrastructure.
KPMG said these can qualify as Group 1a crypto assets when the token preserves "the same deposit liability with identical legal rights to cash, insolvency ranking, and repayment terms, OSFI indicates the credit, market, and liquidity risk treatment should generally follow the non-tokenized equivalent."
OSFI similarly says Group 1a assets are generally subject to the same requirements for calculating risk-weighted assets as their traditional counterparts.
A stablecoin can introduce separate risks tied to its issuer, reserves and redemption structure, while a properly structured tokenized deposit can remain inside the existing bank-deposit framework.
As KPMG said, tokenized deposits could support 24/7 payments, treasury management and settlement without fundamentally changing the credit-risk treatment of the underlying deposit.
OSFI warns that tokenization can still introduce different liquidity and operational risks, meaning banks cannot assume a tokenized asset receives identical treatment merely because its traditional equivalent does.
Still, the difference could matter as Canadian financial institutions decide whether to build their own stablecoins or tokenize deposits they already issue.
- Canada's federal Stablecoin Act, which received Royal Assent earlier this year, covers issuance by non-financial institutions and is expected to come into force after supporting regulations are completed.
- Banks and other prudentially regulated institutions remain outside that issuer regime and subject to their existing regulators instead.
That leaves Canadian banks with two routes to blockchain-based money, but under current rules, one may fit much more easily onto their balance sheets than the other.