The Office of the Superintendent of Financial Institutions Launches Consultation on Stablecoins
On April 17, 2023, the Office of the Superintendent of Financial Institutions (“OSFI”) published a news release announcing the launch of initial consultations on international recommendations related to stablecoins. While the consultation is aimed at federally regulated financial institutions (“FRFIs”), OSFI welcomes participation from other interested parties. The consultation is focused on fiat-referenced crypto assets pegged to a fiat currency and backed at least one-for-one by cash and cash equivalents. The announcement marks OSFI’s continued progression through their Digital Innovation Roadmap, which we discuss in our article published in late 2022.
The consultation will seek input from FRFIs and other stakeholders on the Financial Stability Board’s (“FSB”) draft “High-level recommendations” for the regulation of global stablecoin arrangements published in October 2020 and updated in October 2022. The FSB intends to finalize these recommendations in July 2023. In summary, the FSB recommends for financial services regulatory authorities who are developing requirements for global stablecoin arrangements to:
- Receive all required powers and tools necessary to regulate and oversee stablecoin arrangements and enforce relevant laws and regulation effectively.
- Apply standards consistent with international approaches and proportionate to the risks of the arrangements, in a manner consistent with their respective mandates.
- Cooperate and coordinate, both domestically and internationally, to ensure comprehensive regulation across borders and sectors.
- Require stablecoin arrangements to implement governance frameworks that include clear and direct lines of responsibility and accountability.
- Require effective risk management frameworks in place for stablecoin arrangements, including with regard to operational resilience, cyber security safeguards and anti-money laundering measures.
- Require stablecoin arrangements to implement robust systems and processes for collecting, storing and safeguarding data.
- Require appropriate recovery and resolution plans for stablecoin arrangements.
- Require stablecoin arrangements to provide transparency and comprehensive disclosure to all stakeholders, especially with respect to governance, redemption and stabilization.
- Require the issuers of stablecoins to provide a robust legal claim for all holders of the stablecoin against the issuer and/or underlying reserve assets, with the guarantee of timely redemption. Stablecoins should have effective stabilization mechanisms, clear redemption rights and meet prudential requirements.
- Require stablecoin arrangements to satisfy all applicable requirements of a jurisdiction prior to commencing operations in that jurisdiction, and adapt to new requirements as necessary.
OSFI is seeking input from FRFIs and others on the application of these recommendations for the Canadian financial system. The goal of the consultation is to help inform OSFI’s potential development of risk management expectations and future regulation for FRFIs that engage in crypto asset activities.
The information collected could also assist OSFI in their future consultations and risk assessments relating to crypto assets generally, such as those announced in the 2023 federal budget, as described in our article Budget 2023: Financial Institutions Update.
The consultation period runs for nine weeks, ending on June 16, 2023. Interested parties can participate by contacting OSFI at [email protected]. An information session is scheduled for May 15, 2023 to address participant questions. Registration for this session is available through this link.
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