Crypto: Canadian regulator joins FED and details liquidity rules

Crypto risks continue to worry regulators. Even though some think they present great opportunities, it is still necessary to keep them under control. And that is what the Canadian banking regulator intends to do.

Canada joins European and American authorities

The massive adoption of cryptocurrencies is pushing regulators to take drastic decisions to keep the industry under control. The more time passes, the more investors are interested in these assets. However, the risks are not insignificant.

Therefore, to protect traders, the Office of the Superintendent of Financial Institutions (OSFI) of Canada decided to limit exposure to cryptocurrencies and detailed liquidity rules for banks under its supervision. Thus, it issued interim guidelines last Thursday. According to these, the regulatory body classifies crypto assets into two categories.

The first represents traditional assets that confer rights and obligations. As for group 2, it would encompass most digital assets. Therefore, financial institutions must inform the OSFI if their type exposure exceeds 1% of their type 1 capital. The same rule applies if their net short positions exceed 0.1% of their capital.

An important decision for the regulator

The decentralization of digital assets is a big problem for governments. Because of this, the Office of the Superintendent of Financial Institutions believes these guidelines are a big step in ensuring caution in an industry as volatile as crypto.

Just like in many countries, the field is largely unregulated in Canada. Thus, like the US Federal Reserve (FED) and the ECB, the OSFI has asked supervised entities to inform the regulator in writing before any crypto-based activity.

The new guidelines from the Canadian regulator will come into effect in the second quarter of 2023. However, Superintendent Peter Routledge is confident that this interim approach will reduce regulatory uncertainty that has prevented central banks from integrating cryptos into their balance sheets.

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