Canada Keeps Stablecoin Yield Ban in Draft Rules, Opens 60-Day Consultation

60-Day Consultation on Draft Rules

Canada's Department of Finance has released draft stablecoin regulations that preserve a blanket ban on interest payments, opening a 60-day public consultation that runs until December 23. The draft appeared in the Canada Gazette on October 24 and spells out what issuers must do to register with the Bank of Canada under the Stablecoin Act, the statute Ottawa passed earlier this year to govern fiat-pegged tokens. A stablecoin, in this framework, is a digital token designed to hold a fixed value against a government currency such as the Canadian dollar. The consultation document does not change the Act itself; it fills in the operational detail needed before registration opens. The proposed text bars an issuer from paying interest on customer balances, and it closes the obvious workaround: the ban covers interest channeled through third parties for the purpose of encouraging holders to keep their tokens. Rewards connected to actual transactions remain allowed. The prohibition answers a sustained push from Canadian banks. Natalle Begeron, a spokesperson for the Canadian Bankers Association, said in June that the industry group firmly supports the Act's explicit prohibition on yield in both direct and indirect form; the banks argue that interest-bearing tokens would drain deposits and shrink the pool of money traditional lenders can loan out, the same concern that shaped the U.S. debate over its own federal stablecoin law. The government positions the draft as the set of regulations required to bring the SCA into force, prescribing the elements issuers need to register with the Bank of Canada. The consultation notice invites comments through December 23, after which the final text is to be settled ahead of a framework that takes effect around the end of 2027. Ottawa has not flagged which provisions are open to revision, though the yield prohibition was the most contested element heading into publication.

One-to-One Reserves and a 1% Redemption Cap

The prudential requirements in the draft are concrete. Non-bank issuers would have to hold reserves equal to the value of every circulating fiat-pegged token, and place those reserves with qualified Canadian financial institutions, a list that spans banks, credit unions and trust companies. Customers would be entitled to exchange their tokens for regular currency within three business days, and redemption fees could not exceed 1.00% of the amount redeemed. Redemption in this design means conversion back into regular currency, not into another token. The rules target non-bank issuers specifically, leaving deposit-taking institutions to the existing banking rulebook. Those numbers matter because parts of the Canadian market already operate outside them. Some domestic exchanges pay holders rewards on stablecoin balances today, and Coinbase Canada obtained permission from the Ontario Securities Commission this year to provide yields on eligible tokens, on the condition that it warn customers about the risks and state plainly that the funds are not covered by deposit insurance; the terms and conditions sit on the regulator's record. A finalized federal ban on yield would sit above that provincial permission and could force a redesign of existing reward programs. The institutional backdrop is moving in parallel. Late last month, Canada's six largest banks said they were studying a Canadian-dollar tokenized system to move money between traditional financial institutions faster. That followed a September 10 statement from the Office of the Superintendent of Financial Institutions, the country's banking regulator, that tokenized deposits are not legally distinct from traditional deposits. Tetra Trust Company, Canada's first regulated digital asset custodian, launched CADD, a Canadian-dollar stablecoin approved by Alberta Treasury Board and Finance, in May. The Department of Finance framework page confirms the same late-2027 timeline for the regime.

The choice embedded in the primary text is deliberate: Ottawa has picked deposit protection over token-holder yield, and with every major bank lined up behind the prohibition, the December 23 consultation is unlikely to reverse it. The clause that will draw the closest reading is the carve-out for transaction-linked rewards, which stays permitted but remains loosely defined; existing Ontario-authorized programs depend on exactly that distinction. In effect, the draft forecloses a domestic market for yield-bearing stablecoins, while the 1% fee cap and three-day redemption standard give compliant issuers a workable service floor. The late-2027 start leaves more than a year for adjustment, but the banks' parallel tokenized-deposit track suggests the competition for Canadian-dollar balances will run through deposits first.