Canadian Banks Urged To Limit Crypto Exposure To 1%

Summary of the Article

• Canada has proposed new guidelines around the crypto exposure of the banking and insurance sector in response to Basel Committee’s proposal.
• The latest guidelines from the Office of the Superintendent of Financial Institution (OSFI) suggest financial institutions to have an exposure limit no more than 1% for unbacked crypto assets.
• The consultation period concludes on 20 September and these guidelines will be implemented in the first quarter of 2025.

Canada Introduces Crypto Exposure Guidelines for Banks and Insurance Companies

The Canadian financial regulator, Office of the Superintendent of Financial Institution (OSFI), has proposed new guidelines regarding crypto exposure in banking and insurance sector. The proposal was drafted in response to a December 2022 proposal by Basel Committee on Banking Supervision. The two draft guidelines include one for federally regulated banks and another for insurance companies.

Exposure Limit Suggested by OSFI

The proposal suggests that digital assets should be classified into two broad groups: tokenized traditional assets and stablecoins, and unbacked crypto assets. Banks should have an exposure limit of no more than 1% for unbacked crypto assets. Moreover, it also addressed the rate at which creditors could take possession of a digital asset as collateral, albeit in a legal manner.

Consultation Period Ending Soon

The OSFI consultation period concludes on 20 September and these guidelines will be implemented in the first quarter of 2025. This comes after several banks with exposure to crypto assets collapsed in March 2021 causing huge turmoil in global cryptocurrency industry. This move is expected to contain U.S.-like explosions from happening again.