Canada caps stablecoin redemption fees at 1% for retail holders

Canada’s proposed stablecoin regulations would allow covered retail holders to redeem any amount of stablecoins from an issuer without a minimum threshold, capping issuer redemption fees at 1%. The proposal, published on October 24, establishes specific operating terms for how individuals can exit stablecoin positions directly with issuers, creating a potential alternative to selling tokens on exchanges.

Redemption Terms and Fee Limits

Under the proposed rules, issuers would generally be required to complete redemptions within three business days. The 1% fee cap serves as a maximum limit, meaning actual costs to holders would depend on specific issuer fees and the chosen banking route. A small balance would no longer be a valid reason for an issuer to reject a covered redemption request.

The proposal includes a specific exception for market stress. Issuers would be permitted to impose daily limits on redemptions if liquidity shortages in the markets where their reserve assets trade prevent them from meeting all requests. This stress exception would override the standard timing and value requirements but would leave the 1% fee ceiling intact. Issuers must provide at least seven days’ notice on their websites before starting or increasing redemption fees, and their policies must clearly describe payment methods and the specific situations where daily limits apply.

Scope and Implementation Timeline

The Stablecoin Act, which received royal assent on March 26, has core provisions currently marked as not in force. The government’s impact statement identifies fall 2027 as the intended implementation window. The Act’s redemption duty requires payment at par, or face value, in the currency the stablecoin tracks. For USDC holders, this means redemption in U.S. dollars, while Canadian holders seeking Canadian dollars would need a separate currency-conversion or payment arrangement.

Coverage under the Act depends on the purchaser’s usual residence, head office, or principal place of business in Canada, rather than citizenship alone. The framework reaches both domestic and foreign issuers making stablecoins available to persons in Canada, provided the stablecoin has actual or reasonably expected interprovincial or international applications. Central-bank issuers are excluded, and the Governor of the Bank of Canada can order exemptions if provincial or foreign requirements are substantially similar.

Reserve requirements under the Act mandate that reserves be at least equal to the outstanding par value in the reference currency or qualifying liquid assets. Permitted assets include demand deposits, short-term government debt, qualifying money-market funds, and specified overnight reverse repurchase agreements. These reserves must be segregated from issuer and custodian creditor claims, protecting holder claims without making the token an insured bank deposit.

The consultation period for the proposal runs for 60 days from publication. Preexisting issuers that apply for transitional relief within 30 days of commencement could continue issuing until registration or refusal notification is received. Without an application, this relief ends on day 31. The final rules and decisions on individual issuing entities will determine the practical usability of this redemption route for covered holders.