Canada Stablecoin Regulation: Urgent Need to Catch Up

Are you watching the global crypto space and wondering why Canada seems to be moving slowly on stablecoins? You’re not alone. Industry experts in Canada are increasingly concerned that the country’s current approach to stablecoin regulation is leaving it behind major international players, potentially stifling innovation and impacting the Canadian dollar itself.

Why Canada Stablecoin Regulation Raises Concerns

The core issue stems from the Canadian Securities Administrators (CSA) classifying stablecoins as securities or derivatives back in December 2022. This decision, made after the market turmoil involving FTX and Terra, has created a challenging environment for stablecoin issuers in Canada. Unlike jurisdictions like the United States and the European Union, which are developing more tailored frameworks, Canada’s reliance on existing securities law for stablecoins is seen as a significant hurdle.

Morva Rohani of the Canadian Web3 Council highlights the problem: the CSA uses a case-by-case assessment, resulting in a ‘patchwork’ regulatory landscape. This lack of a clear, federal framework for Canada stablecoin regulation introduces legal and operational uncertainty.

How Canada Compares to Global Stablecoin Approaches

While stablecoins Canada faces a securities-centric view, other regions are adopting different strategies. The European Union’s MiCA law, for instance, treats stablecoins more like payment instruments. Tanim Rasul of NDAX points to MiCA as a better model, arguing stablecoins should be regulated based on their payment function.

Beyond the EU, countries like Singapore and the UAE have also introduced specific regulatory frameworks for stablecoins. In the US, there’s optimism about passing stablecoin legislation soon. This global trend towards tailored, prudential frameworks for stablecoins as payment instruments puts Canada’s current approach out of step with leading jurisdictions.

The Impact on the Canadian Dollar (CAD Stablecoin)

One significant concern is the potential effect on the Canadian dollar (CAD). With other major stablecoins, primarily pegged to the US dollar, seeing global growth, there’s worry that Canadians might increasingly turn to USD-pegged alternatives if local CAD stablecoins don’t emerge.

Som Seif of Purpose Financial warns that without a regulatory framework encouraging the development of a CAD stablecoin, consumers and businesses could default to using USD-pegged options. This shift could potentially erode the relevance of the Canadian dollar in domestic and global digital transactions.

Addressing the P2P Payments Canada Gap

Stablecoins are often highlighted for their potential in improving peer-to-peer (P2P) payments. Industry figures like Lucas Matheson, CEO of Coinbase Canada, see a clear need for a Canadian stablecoin to facilitate cheaper and faster P2P transfers compared to traditional methods like wire transfers.

While Canada has services like Interac e-Transfer, which operates through traditional banks, and international apps like PayPal and Wise, stablecoins offer the potential for lower costs and quicker settlement times. However, widespread adoption for P2P payments Canada faces challenges, including a lack of integration into mainstream finance and public perception regarding crypto’s security, as noted in the Payments Canada 2024 digital payments report.

Political Landscape and the Path Forward for Crypto Regulation Canada

The political climate in Ottawa also plays a role in shaping crypto regulation Canada. While Prime Minister Mark Carney has previously expressed skepticism about cryptocurrencies failing as money, he has acknowledged a potential role for stablecoins in payments, provided strong safeguards are in place.

Experts anticipate a pragmatic but regulation-first approach under the current government. This could mean the CSA continues its enforcement role, but there’s potential for broader policy work, possibly leading to a stablecoin framework. Positioning stablecoins as a tool for payments modernization and maintaining the CAD’s relevance could be key to encouraging this development.

Summary: Time for Canada to Act

Canada’s current approach to stablecoin regulation, classifying them primarily as securities, is seen by many in the industry as a significant drag. This contrasts sharply with tailored frameworks emerging in the US, EU, and elsewhere. The lack of a clear path for stablecoins risks hindering innovation, failing to address gaps in areas like P2P payments, and potentially impacting the standing of the Canadian dollar.

While public perception and integration challenges remain, the call from the industry is clear: Canada needs a tailored, prudential framework for stablecoins that recognizes their potential as payment instruments. Catching up to global peers requires concerted effort from policymakers to unlock the benefits stablecoins could bring to the Canadian economy.