Federal financial regulators are tweaking the capital treatment for certain crypto asset exposures as part of an ongoing review of the fast-evolving crypto landscape.
On Wednesday, the Office of the Superintendent of Financial Institutions (OSFI) announced revisions to the guidance and capital requirements for banks’ and insurers’ crypto exposures. This was based on “developments in the crypto markets,” alongside feedback from various stakeholders, the regulator said.
Under the revised guidelines, the regulator said financial institutions’ gross exposure to so-called “group 2” crypto assets — this refers to assets such as bitcoin, ether and other cryptocurrencies, and coins that aren’t backed by underlying assets — will now be limited to 5% of tier 1 capital, up from the previous limit of 1%.
Additionally, OSFI dropped the requirement that group 2 exposures that exceed 1% of tier 1 capital face the strictest capital treatment. The capital requirements that apply to so-called “group 2b” assets, including a risk weight of 1,250% and hedging, isn’t recognized.
These changes take effect Nov. 1 for institutions that end their fiscal years on Oct. 31. They take effect Jan. 1, 2026 for firms that end their fiscal years on Dec. 31.
“The guidelines reflect considerable consultation with stakeholders and offer a more risk-sensitive approach,” OSFI said, compared with the regulator’s initial approach to crypto asset exposures that has been in place since August 2022.
Additionally, OSFI said it’s reviewing other elements of the capital treatment of crypto, including the risk weight applied to group 2a assets. This would potentially allow these assets to be recognized as collateral, with application to cross-market hedges.
“We will address these areas through continued engagement and consultation with industry participants to ensure that the guidelines remain well-aligned with the underlying risks to the Canadian financial system,” OSFI said.