The pressure is on for Finance Minister François-Philippe Champagne to deliver a framework that fosters innovation while protecting consumers. But will the proposed legislation live up to the hype, or will it leave too many questions unanswered?
The proposed framework reportedly draws “significant inspiration” from the U.S. Genius Act, passed into law in July. This act aims to define and regulate stablecoins, cryptocurrencies pegged to a stable asset like the U.S. dollar or gold, facilitating instant payments akin to sending a text message.
But sources familiar with the Canadian draft express concerns about its clarity, particularly regarding the fundamental question: is a stablecoin a payment instrument or a security? The answer dictates who regulates it and how.
In the U.S., stablecoins are generally treated as payment instruments, leading to federal-level regulation. Canada, however, has historically viewed digital currencies like Bitcoin as securities, placing them under provincial jurisdiction. This jurisdictional ambiguity could stifle innovation if left unaddressed.
Canadian stablecoin issuers and even the Bank of Canada are publicly advocating for a clear, federal framework. They point to the U.S. Genius Act as a catalyst for modernizing payments and legitimizing stablecoin transactions, urging Ottawa to follow suit. As Ron Morrow, the central bank’s executive director of payments, stated at a September conference, Canada should “weigh the merits of federal stablecoin regulation, similar to what other countries have done.”
The stakes are high for Canadian businesses. Shopify already offers stablecoin payment options through partnerships with Coinbase and Stripe. Startups like Calgary-based Tetra and Loon are actively developing Canadian-dollar-backed stablecoins.
Eric Richmond, general counsel at Shakepay, emphasizes the need for a framework that allows innovation to flourish, rather than simply handing the reins to traditional banks. “It’s [about] creating a framework where companies can continue to innovate,” Richmond said.
“We hope that they address the two key issues around the treatment of stablecoins as securities, and the need to treat stablecoins as deposits for regulatory purposes.” – John Ruffolo, Bay Street Financier
John Ruffolo, a vocal proponent of a Canadian response to the Genius Act, stresses the importance of differentiating from the U.S. legislation, particularly in areas like anti-money laundering (AML) compliance. Without clear language treating stablecoins as payment tools, not securities, providers will face significant operational hurdles, according to Didier Lavallée, CEO of Tetra Digital Group.
Matthew Burgoyne, a lawyer representing stablecoin issuers, anticipates jurisdictional conflicts between provincial securities regulators and federal payment oversight. The industry could face a complex web of regulations, including the Retail Payment Activities Act, the new stablecoin law, FINTRAC rules, and securities regulations.
Kevin Zhang, CEO of Loon, anticipates a lengthy consultation process and potentially a year before any legislation becomes law. However, he remains optimistic, viewing a Canadian version of the Genius Act as a sign of leadership and a recognition of “the sovereignty of money moving onto the blockchain as important.”
The unveiling of this draft legislation is just the first step. The real test will be whether Ottawa can strike a balance between fostering innovation, protecting consumers, and establishing a regulatory framework that is both clear and effective. The future of digital payments in Canada may well depend on it, especially as many worry that Canada is handing the future of payments to the United States as discussed in this opinion piece: Opinion: Is Canada handing the future of payments to the United States?.
