Canada's Draft Stablecoin Rules Cap Redemption Fees at 1%, Ban Yield

Canada published draft stablecoin regulations on October 24 that would cap redemption fees at 1%, require one-to-one reserves held with Canadian custodians, and prohibit issuers from paying interest to coin holders. The draft, published in the Canada Gazette, opens a 60-day comment period running until roughly December 23, with the rules targeted to come into force in fall 2027.

The proposal implements the Stablecoin Act, which became law on March 26, 2026, after Ottawa first announced the plan in its November budget. The Bank of Canada will register and supervise issuers. Penalties range from C$1 million for serious violations to C$10 million for "very serious" ones, such as failing to hold adequate reserves or redeem coins at par value.

For holders, the rules determine whether real cash comes back if an issuer collapses, how fast it arrives, and what it costs.

What do the reserve requirements demand?

Every coin must be backed one-to-one by reserves limited to two asset classes: cash and government debt maturing in three months or less, plus money market funds holding only such assets. Those reserves must sit with a Canadian custodian in separate accounts that creditors cannot reach if the issuer goes bankrupt.

Holders could redeem any amount within three business days, with fees capped at 1%. Issuers may keep what the reserves earn themselves, provided reserves stay at least equal to the coins outstanding.

The rules also bar issuers from presenting a coin as a bank deposit or claiming deposit insurance or a government guarantee. Complaints would need acknowledgment within seven days and resolution within 30.

How far does the yield ban reach?

Issuers could not pay interest for simply holding a coin, and they could not route yield through third parties either. Any arrangement that lets someone earn yield from holding a coin, including sharing the issuer's income, counts as an indirect payment. Rewards tied to using a coin, rather than holding it, would remain allowed.

"These prohibitions are intended to distinguish stablecoins from financial products that compete directly with bank deposits or other interest-bearing instruments," the notice says.

Who falls under Bank of Canada oversight?

The notice assumes five stablecoin issuers would register, along with roughly 30 more payment companies, including crypto platforms that hold customers' coins in wallets. All would come under Bank of Canada supervision once the rules take effect.

The regulatory thrust aligns with a payments modernization agenda the central bank has articulated publicly. "There is a pressing need for faster, cheaper, more transparent and more accessible cross-border payments services," Ron Morrow, the Bank of Canada's executive director of payments, supervision and oversight, said at an Ottawa conference in September 2025.

How does this compare with the U.S. framework?

The United States passed its own stablecoin law first. President Donald Trump signed the GENIUS Act on July 18, 2025, which also bars issuers from paying holders interest. The subsequent fight in Washington has centered on letting crypto platforms offer yield to users, a practice banks oppose on the grounds that deposits could drain toward crypto.

That dispute proved divisive enough to help sink the Clarity Act in the Senate, a separate bill meant to set broader rules for the crypto market. The banking lobby opposed the Clarity Act because it did not sufficiently close what banks viewed as a loophole in the GENIUS Act, which currently allows platforms such as Coinbase to offer yield to customers holding USDC in their accounts.

Canada's draft now imports the same fault line north of the border. By defining indirect yield arrangements through third parties as prohibited, Ottawa has gone further than the current U.S. reading, closing the platform loophole before any equivalent Canadian market develops.

What happens next?

Comments run for 60 days from publication, closing on approximately December 23. The government stated its timeline plainly: "The intention is for the proposed Regulations to come into force in fall 2027."

Issuers and payment platforms operating in Canada now face a roughly two-year runway to restructure custody arrangements, establish Canadian reserve accounts, and strip any yield-bearing features from their products before the Bank of Canada's supervisory regime begins.