- The Canadian OSFI has created interim rules that limit banks’ exposure to cryptocurrencies.
- The rules will take effect in the second quarter of 2023.
- The regulator will update the interim approach as needed.
The Office of the Superintendent of Financial Institutions (OSFI), a Canadian regulator, said the country’s banks and insurers must limit their exposure to cryptocurrencies. In particular, the interim rules state that these companies can only use a small fraction of the capital and, if their exposure exceeds 1% of their Tier 1 capital, they should notify the regulator.
The rules will take effect in the second quarter of 2023. Another clause is that banks and insurers will need to notify the OSFI if their total net short positions on such assets exceed 0.1% of Tier 1 capital.
The rules are in place until the OSFI and others can further develop the regulation surrounding cryptocurrencies, which is largely lacking in the country. The regulator said it will update the interim approach as needed to reflect various developments.
Superintendent Peter Routledge said of the interim agreement,
“Like other financial institutions around the world, some Canadian FRFI have exposures to cryptocurrencies and we have provided this interim approach to ensure that risks in this area are managed prudently and supervised on the principle of” same business, same risk, same. regulation ‘. “
The move marks a step forward for Canada, which hasn’t taken too many actions in terms of providing a broad set of rules for the cryptocurrency market. This could change in the coming months as more countries, including its neighbors, the United States, accelerate efforts.
Upcoming regulation for the cryptocurrency market
The cryptocurrency market has long faced the inevitability of regulation. However, it is only in the past 18 months that the problem has become more important globally. Several events, including the collapse of TerraUSD, have brought more attention to the issue.
Both the European Union and the United States have doubled down on their cryptocurrency regulation efforts. A recent cryptocurrency bill by US Senators is likely to be reviewed next year, as the EU has called for stablecoin regulation in the wake of the TerraUSD crash.
More countries are likely to start working on cryptocurrency regulation this year. The market has become popular enough to warrant the attention of lawmakers and their focus will be on issues such as investor protection, taxation and the prevention of illegal activities.