Canada’s 2026 Budget Requires Federally Regulated Banks to Issue Stablecoins Through Subsidiaries
Key Facts
Canada’s 2026 Budget announced the government’s intention to require federally regulated financial institutions to issue stablecoins through non-financial subsidiaries subject to the Stablecoin Act. Under the proposal, a federally regulated financial institution would not issue the coins directly but would have to use a separate entity outside its core financial business. The budget says these subsidiaries would fall under the law dedicated to stablecoins. This sets out a defined regulatory path for banks and federal institutions seeking to enter the issuance market. It also proposes expanding the law to cover a category of foreign financial institutions operating in the sector.
The proposed expansion covers foreign financial institutions that are not subject to prudential oversight in Canada. The budget says the aim is to promote consistent regulatory treatment among stablecoin issuers. The amendment would therefore address not only how Canadian institutions issue the coins, but also the status of foreign entities that may operate in the market without being subject to Canadian prudential oversight. This could affect cross-border entities that issue the coins or offer them to users in Canada. The budget text cited did not provide further details on how the rules would apply to each foreign entity.
The proposal builds on an existing Canadian framework that requires issuers to hold reserves equal to the value of stablecoins at a 1:1 ratio. The reserves must consist of high-quality liquid assets denominated in the stablecoin’s reference currency. Issuers must also establish a redemption policy and make redemption available at par in the reference currency. The framework gives coin holders defined reserve and redemption terms, alongside the new proposals concerning the identity of the issuer. The Bank of Canada administers the framework and oversees issuers.
On customer protection if entities fail, the budget said the government would continue consulting stakeholders on options to strengthen protections if a stablecoin issuer or custodian becomes insolvent. This indicates that arrangements for handling insolvency remain under government discussion. In draft regulations published in the Canada Gazette, the proposed rules prohibit describing a stablecoin as a deposit, as insured under a public deposit insurance system, or as government-guaranteed. The draft also sets an on-demand redemption deadline of no more than 3 business days and caps redemption fees at 1% of the amount redeemed. The government said stakeholders broadly supported establishing a stablecoin framework, though views differed on specific regulatory details.
Canada’s deposit insurance rules distinguish between eligible deposits at member institutions and cryptocurrencies; the Canada Deposit Insurance Corporation does not cover cryptocurrencies. In the 2026 Budget, the government also announced its intention to raise the deposit insurance limit to 250,000 Canadian dollars and allow temporary coverage for high balances in some cases. It also proposed removing the limit for some eligible deposits in registered, tax-exempt accounts. These changes concern eligible deposit insurance, while cryptocurrencies remain outside coverage under guidance from the Financial Consumer Agency of Canada. The published budget text does not state that deposit guarantees for stablecoins will be abolished.
The Department of Finance Canada expected work on the stablecoin framework to continue for 12 to 18 months from early 2026, with the framework entering into force in 2027. By contrast, the draft regulations say the intention is for them to take effect in fall 2027. Once they enter into force, stablecoin issuers other than financial institutions will need to register with the Bank of Canada before issuing. This timeline gives issuers a period to prepare for registration, reserve and redemption requirements. In the meantime, the government will continue consulting on consumer protection in the event of an issuer’s or custodian’s insolvency.