Canada Regulator Confirms Legal Nature of Tokenized Deposits Remains Unchanged
The Office of the Superintendent of Financial Institutions (OSFI) in Canada stated that federal financial institutions may offer tokenized deposits, provided they comply with existing laws and consult with regulators in advance; the underlying technology does not determine the legal nature, and tokenized deposits are legally indistinguishable from traditional deposits.
The statement adopts a technology-neutral stance, focusing on what the product "is" rather than "how it is built or delivered." Financial institutions and their third-party innovations must comply with existing laws and regulations, including guidelines such as B-13 on technology and network risk management, and B-10 on third-party risk management. Before launching any novel products or services, they must communicate with the relevant primary regulator and are encouraged to seek legal advice. This statement pertains to licensed businesses under federal financial institution legislation, providing clarity on the feasibility of digital deposits while not establishing a separate token law. The proposed stablecoin legislation excludes "deposits or deposit certificates" and assets under public deposit insurance from the definition of stablecoins, aligning with the approach of keeping tokenized deposits within the bank liability framework.
Buyers aim to keep deposits on the balance sheet while obtaining a transferable on-chain form from federally licensed institutions, while sellers are non-bank issuers creating independent stablecoins with similar payment functions. The funds remain bank liabilities; only the registration and clearing form changes. Beneficiaries are banks that can conduct digital deposits within existing prudential rules, deposit insurance, and capital frameworks; those under pressure are issuers attempting to make payment stablecoins a substitute for bank deposits—legal identity remains tied to "deposits," and licensing, freezing, and repayment obligations do not disappear simply because they are on-chain.
Source: Public Information
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OSFI has not approved a new currency but has locked tokenized deposits back into deposits under the Bank Act. Technology neutrality means that distributed ledgers are just ledgers and cannot rewrite bank liabilities into issuer-less tokens. Consulting with the primary regulator in advance shifts innovation from "launch first, explain later" to "discuss first, then launch." B-10 brings third-party on-chain service providers into the bank outsourcing risk, while B-13 incorporates keys and nodes into cybersecurity items.
The capital path allows bank deposits to remain on the balance sheet for lending, while stablecoins place reserves off-balance sheet with payment companies. The proposed Canadian stablecoin law explicitly excludes deposits and deposit insurance assets to prevent the same liability from being claimed under two sets of laws simultaneously. Foreign regulators like the Bank of England tend to favor tokenized deposits over spontaneously issued bank stablecoins, as the logic is to maintain the singularity of currency: bank liabilities settle at face value, while stablecoins may trade at a discount.
This aligns with the deposit token network planned by U.S. banks and clearinghouses, and JPMorgan's Kinexys for wholesale circulation: the wholesale side has already moved bank currency using a permissioned chain, while the retail side remains stuck on definitions. The industry is in a regulatory clarification period, transitioning "digital twins of bank deposits" from pilot projects to licensed businesses.
This represents a regulatory change. The mechanism is: the legal nature follows the rights, not the ledger; whoever has the repayment obligation to the holder determines whether it is a deposit or something else. On-chain can accelerate settlement but cannot push banks out of the currency hierarchy unless legislation changes the definition of deposits.
ABAB News · Cognitive Law
The ledger can change, but the party liable to the holder cannot.
Technology-neutral regulation first asks what the product is, then which chain it runs on.
Writing tokenized deposits as ordinary deposits confines innovation within existing prudential cages.