Federal Budget Sets Stage For Canadian Stablecoin Legislation, But Key Contours Remain Unclear

Key Takeaways

• Budget 2025 announces forthcoming federal legislation to regulate fiat-backed stablecoins in Canada, shifting oversight from provincial authorities to the Bank of Canada.
• Issuers will need to maintain reserve assets, implement redemption policies and ensure risk management, aligning with existing CSA guidelines but now codified into law.
• Amendments to the Retail Payment Activities Act will clarify the relationship between payment service providers and prescribed stablecoins.
• Unanswered questions remain regarding the distinction between fiat-backed stablecoins and those classified as securities.

On November 4, 2025 the government of Canada released Budget 2025 [PDF]. Although the budget contained a wide range of fiscal and tax measures, one line in particular stood out for participants in Canada's digital asset industry. The federal government intends to introduce legislation that will regulate the issuance of fiat-backed stablecoins in Canada. This is the first time the federal government has announced in a budget that it will bring forward legislation of this type, which will represent the first statute in Canada singularly focused on cryptocurrency. For several years, oversight of stablecoins has been largely the domain of provincial securities regulators, through several Canadian Securities Administrators (CSA) Staff Notices that impose tailored expectations on cryptoasset trading platforms and fiat-backed stablecoin issuers.

What is new, therefore, is not the concept of oversight itself, but who at the governmental level will exercise oversight, through what legal vehicle and for which types of stablecoin and stablecoin-related functions. Those questions matter because they determine how issuers design their legal structures, how they access banking and, ultimately, how the Canadian market itself will develop.

Here is what Budget 2025 tells us.

The path ahead for Canadian stablecoins

First, the budget states that the forthcoming federal legislation will require issuers to maintain adequate reserve assets, implement redemption policies and ensure appropriate risk management. These are concepts the industry has become familiar with through CSA Staff Notices 21-332 Crypto Asset Trading Platforms: Pre-Registration Undertakings – Changes to Enhance Canadian Investor Protection and 21-333 Crypto Asset Trading Platforms: Terms and Conditions for Trading Value-Referenced Crypto Assets with Clients. In other words, the substance is not entirely new. Reserve backing, liquidity planning, redemption on demand in Canadian dollars, attestations, custodial segregation and operational resilience are already required of stablecoin issuers via the above-mentioned CSA guidance. The difference here is that these requirements will acquire statutory effect at the federal level (thus codified into law), rather than being "staff guidance" imposed through securities regulator staff notices.

Second, oversight of the new federal legislative regime will be administered by the Bank of Canada. The budget documents allocate approximately $10 million over two years, beginning in 2026–2027, for the Bank to administer the new stablecoin regime. After that initial period, annual administration costs are expected to be approximately $5 million per year. Those costs will likely be recovered from regulated stablecoin issuers under the new legislation. This is a very clear signal that stablecoin issuance is being characterized by the federal government as a payments activity rather than a capital markets activity. Stablecoin issuers have consistently argued that a stablecoin is functionally a payment instrument and that oversight should be federal, like oversight of retail payments, rather than provincial securities regulation. This is the first time that Ottawa has moved in that direction.

Third, amendments to the Retail Payment Activities Act (RPAA) will be made to enable the regulation of payment service providers (PSPs) that carry out payment functions using "prescribed stablecoins". This is a very interesting statement. It implies that there will be a category of stablecoin that qualifies as "prescribed stablecoin"; however, what that term means exactly is still unclear. The implication is that if a PSP uses a "prescribed stablecoin" for its payments functions, then that PSP will remain a RPAA entity, and not a securities market participant. This is significant, as many PSPs and non-securities market participants were concerned about the possibility of having to comply with securities laws simply because they dealt in stablecoins, given that CSA staff strongly suggested stablecoins were securities or derivatives under Canadian law.

Unanswered questions

While the budget creates momentum and legislative direction, there remain fundamental unanswered questions. For example, what is the dividing line between a federally regulated fiat-backed stablecoin and a stablecoin or token that meets the definition of a security? The most obvious dividing line may be yield. A fiat-backed stablecoin that pays interest to holders may still be viewed as a security, because the yield feature introduces an expectation of profit tied to the underlying reserve assets. If that is the dividing line, then that category of stablecoin will likely remain under provincial securities jurisdiction. Conversely, if the token does not pay yield and is used principally as a payment instrument, then it may fall under the federal legislation.

This is an important issue, and one that deserves some clarity. If Ottawa ultimately draws a functional perimeter that excludes payment stablecoins from securities law, while preserving securities jurisdiction for assets such as yield-bearing stablecoins or stablecoins backed by a basket of different assets, that will represent a structural reordering of two levels of jurisdiction.

This is why Budget 2025 and the announcement of the federal government's intention to regulate stablecoins matters far more than a single sentence would suggest. It signals movement from the federal government into a space that until now has been entirely managed by the CSA. It introduces the Bank of Canada as regulator of fiat-backed payment tokens. And it hints at a world where stablecoins can be built, issued, redeemed and used within a federally supervised payments environment.

Draft legislation is expected in the coming months, and industry will be watching closely.

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