Canada Gives Banks Green Light on Tokenized Deposits as OSFI Clarifies Their Legal Status

The banking regulator for Canada stated that a tokenized deposit should be treated the same as any other deposit accepted by federally regulated financial institutions․

The Office of the Superintendent of Financial Institutions has said that its technology-neutral approach focuses on the nature of the product‚ not on the infrastructure used to create or deliver it․

Because of this principle of non-separability‚ tokenization of a deposit on a blockchain or other network does not create or modify a separate, distinct financial instrument․ OSFI said that tokenized deposits are not legally distinct from underlying deposits and that banks are subject to the existing federal regulatory framework for the underlying banking activity․

Institutions are ultimately responsible for meeting any compliance and legal obligations even when using third-party technology service providers․

The regulator also encouraged institutions to refer to its B-13 guideline on technology and cyber risk management and B-10 guideline on third-party risk management․ Banks considering a new product or service should contact their OSFI lead supervisors before launching them․

This distinction is important because financial institutions are trialing payments and settlements using blockchain․ A tokenized deposit is commercial bank money stored on a digital ledger․ It is a liability of the bank issuing it․ By contrast‚ stablecoins are classified differently depending on the issuer‚ means of backing‚ and the jurisdiction․