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Breaking Down OSFI’s New Crypto Guidelines: Insights From Stone Bridge Ventures Chris Ford

Breaking Down OSFI’s New Crypto Guidelines: Insights From Stone Bridge Ventures Chris Ford

According to Stone Bridge Ventures Senior Account Manager Chris Ford, Canada’s main financial regulator is proposing new liquidity and capital guidelines for insurers and financial institutions managing crypto. In December 2022, the Basel Committee on Banking Supervision provided banking standards for exposure to crypto assets. Therefore, the proposed guidelines were drafted as a response to these international banking standards. 

The recent changes in the liquidity and capital approaches for crypto assets show a growing risk environment. Even so, the Office of the Superintendent of Financial Institutions stated that international developments are underway. Therefore, the country needs to align its methods with global standards.  

OSFI Provides Separate Guidelines For Insurers and Other Institutions 

These guidelines will provide details for insurers and deposit-taking institutions like credit unions and banks, which are regulated by federal bodies. Using these proposals, institutions will understand the regulatory capital treatment of crypto asset exposure. The OFSI has kept the guidelines open for public consultation until the end of September.  

OSFI’s guidelines classify crypto assets into four main categories while listing the capital requirement for each one. Until the new proposals are approved, the interim advisory on regulatory capital treatment of cryptocurrency exposures from August 2022 will be applicable.  

The head of the OSFI, Peter Routledge, stated that insurers and other deposit-holding institutions require clarity on treating cryptocurrency exposures in terms of liquidity and capital. He hopes to provide clarification via new guidelines that align with international standards and show industry output.  

Basel Committee Develops Standards for Banks With Crypto Exposures  

When it comes to regulating banks all over the world, the Basel Committee sets the gold standard. Last year, it rolled out regulations for banks that had cryptocurrency exposures. The standards gave information on the treatment of banks’ cryptocurrency exposure.  

These regulations gave specific instructions for stablecoins, tokenized assets, and more. They also classified digital assets as the riskiest ones that a deposit-taking institution can hold, particularly if it’s subject to federal regulations. 

Chris Ford of Stone Bridge Ventures expects these new standards by the Basel Committee to come into effect by January 2025. As of now, the European Union has already come to an agreement on capital legislation for banks with cryptocurrency exposures. This is done as a way to keep unbacked cryptocurrency out of the traditional financial system.  

OSFI’s New Rules Reflect Evolving Risk Environment  

The new rules by the OSFI will reflect the changing risk environment surrounding the asset classes. They will also incorporate the changes that were introduced in the latest standards by the Basel Committee in 2022. Statements by the regulator explain that in addition to implementing the latest banking standards, the insurance guidelines have undergone adjustments to meet the needs of the country’s insurance industry.  

Stone Bridge Ventures Senior Account Manager Chris Ford concludes that these new changes could mean a new chapter for Canada’s crypto industry. The fact that these changes are being introduced amid growing concerns regarding the effects of cryptocurrencies on global banking systems. Considering how US crypto-friendly institutions like Signature Bank and Silvergate had to seize operations due to liquidity issues, it’s about time that Canada’s regulators take pre-emptive action. 

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