Canada Limits Banks’ Exposure to Crypto: Insights By Stone Bridge Ventures Senior Account Manager Joe Corbin

Canada Limits Banks’ Exposure to Crypto: Insights By Stone Bridge Ventures Senior Account Manager Joe Corbin

Based on insights by Joe Corbin, a Senior Account Manager at Stone Bridge Ventures, Canada’s top financial regulators are looking to limit banks’ exposure to cryptocurrencies and other digital assets. Recently, the Canadian regulator OSFI proposed draft guidelines for institutions with crypto exposures in the insurance and banking sectors.  

The draft, which was rolled out by the Office of the Superintendent of Financial Institutions, provides suggestions. These are aimed toward financial institutions, informing them about the liquidity and capital risks of crypto asset exposure. 

These newest guidelines show a changing risk environment surrounding cryptocurrencies and reflect international developments. In a statement, the OSFI explained that these proposals have been developed as a response to international standards. These standards were introduced in December 2022 by the Basel Committee on Banking Supervision, which is the premier standard for financial institutions.  

Guidelines Classify Digital Assets Into Two Categories  

The guidelines include one for insurance companies and one for federally regulated banks. Having reviewed the proposal, Joe Corbin of Stone Bridge Ventures explains that the OSFI has classified digital assets into two groups.  

The first category includes stablecoins and tokenized traditional assets, while the second one includes unbacked crypto assets. Additionally, banks should follow an exposure limit of no more than one percent for unbacked crypto assets.  

It also states that banks should assess tokenized traditional assets separately from non-tokenized assets. They shouldn’t assume that a tokenized traditional asset is qualified because the traditional asset is qualified. It’s possible that a tokenized asset has entirely different market liquidity characteristics compared to a traditional, non-tokenized asset.  

It even clarified the rate at which creditors could possess a person’s digital token as collateral, in a legal manner, of course. As of now, the draft guidelines are available for public review until September 20. If these rules are approved, they’ll be implemented toward the start of 2025. 

Latest Measures May Prevent Major Crypto Explosions  

Currently, Joe Corbin of Stone Bridge Ventures expects Canadian regulators to come up with measures to prevent major crypto explosions, such as the ones that affected the US in March. After all, Canada isn’t the only major economy highly concerned about large financial institutions’ exposure to crypto assets.  

The international crypto industry based in the US and around the world faced massive problems early this year. This happened when numerous banks with high rates of crypto exposure suddenly collapsed, destabilizing the economy.  

Silicon Valley Bank, a crypto-friendly institution, collapsed in March after its parent company performed poorly on the stock market. Once this happened, many crypto companies started withdrawing their funds from SVB.  

At the same time, another well-renowned crypto-friendly financial institution, Silvergate Bank, made the decision to cease operations and liquidate assets. And a few days later, the New York authorities shut down Signature Bank, another crypto-friendly bank that ended up winding down operations.  

As a result, Joe Corbin of Stone Bridge Ventures expects that Canada’s main regulators will come up with tighter rules on limiting banks’ exposure to crypto assets. Doing so will help protect these institutions from sudden shifts in the market.  

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