Canada has proposed a stablecoin rule that would let an issuer reward a payment while barring it from paying people to keep tokens in their wallets. The distinction appears in draft regulations published October 24, with comments open until December 23.
Summary
- Section 14 permits rewards tied to a stablecoin transaction and excludes payments tied to holding the token.
- The proposal treats an issuer’s third-party income-sharing arrangement as indirect yield when it encourages rewards for holders.
- Issuers would redeem any amount within three business days, with fees capped at 1% of the redeemed value.
- Reserves must cover outstanding coins at each day’s end and remain with qualified financial institutions domiciled in Canada.
- The 60-day consultation ends December 23, 2026, before the proposed framework takes effect.
A customer could receive a rebate for paying a merchant with a Canadian-regulated stablecoin. The same issuer could not promise an annual return merely for keeping that coin in an app. Between the obvious cases sit loyalty points, platform promotions and arrangements where a distributor pays the customer while the issuer funds the distributor. The draft tries to follow who pays and what behaviour earns the reward.
The text in the Canada Gazette is still a proposal. Section 14 says a payment tied to a transaction, but not to holding, is not interest or yield for the Stablecoin Act. Its next paragraph reaches an issuer’s arrangement with another person if the arrangement gives that person holding income or encourages that person to pay yield to holders. Companies designing payment programmes will have to judge both parts of a campaign, not just the label printed on an offer.
The publication date matters because the framework is still in the consultation stage. Issuers cannot treat the October 24 Gazette as an operating licence or a binding approval for a particular loyalty product. The Stablecoin Act supplies the underlying prohibition and the draft regulations explain how the government proposes to apply it. Firms and consumer groups have until December 23 to point out terms that would unintentionally catch payment rebates or leave an easy route to disguised balance yield. The final regulation may be different from the text now on the table.
The payment trigger is a useful starting question for a customer reading an offer. Does the reward arrive when a merchant sale completes? Does it grow because more coins remain in the wallet for longer? Can the user remove the balance immediately after the purchase and still keep the benefit? Answers to those questions reveal more than a promotional percentage. An issuer may advertise a generous annualized equivalent for rewards earned through spending; the form of the advertisement cannot change the actual conditions of payment.
The draft draws its line at the behaviour being paid
Canadian officials had heard objections from fintech firms and banks about a blanket ban on rewards. The Finance Department said it had considered industry feedback and settled on permitting transaction-based rewards while maintaining the statutory bar on yield from balances. The consultation’s initial coverage identified usage incentives, merchant rebates and loyalty programmes among the arrangements the Canadian Web3 Council wanted clearly allowed.
Section 14(1) is short. A payment or reward tied to a stablecoin transaction, and not tied to holding a stablecoin, is not interest or yield. A fixed rebate for a completed purchase fits the language more naturally than a monthly percentage paid on an average wallet balance. The actual programme terms matter. A customer who has to maintain 1,000 tokens for 30 days before receiving a so-called spending bonus may be rewarded for holding as well as spending.
The draft does not provide a comprehensive list of approved card-style promotions. It gives a boundary for companies to apply. One platform might return a small percentage of each completed purchase to a customer. Another might pay a monthly bonus calculated from the lowest balance held during the month. Those arrangements are economically different even if both are called “cashback.” The latter would have to confront the holding prohibition.
The law’s focus is on issuers, and section 14(2) closes a route through intermediaries. If an issuer makes an agreement that allows another person to receive yield from holding its stablecoin, including through income sharing, the issuer may be treated as paying yield indirectly. The same paragraph catches an agreement encouraging the other person to pay yield to the coin’s holder. It is not enough for the issuer to say the app, rather than the issuer, sent the money if the app is being funded to do just that.
There is a genuine boundary question for an independently funded promotion. A merchant might discount purchases paid in a particular token without an issuer arrangement, or a platform might use its own revenue for rewards. The draft’s indirect-yield clause asks about an arrangement involving the issuer. It does not make every payment by every third party the issuer’s payment. The text does not establish that any specific existing programme qualifies, and firms would need to examine the contracts behind the offer.
Consider how an issuer and a merchant might split a rebate. The merchant can reduce the price at checkout, while the issuer can reimburse the merchant for attracting new payment users. If the customer receives the same discount regardless of the balance left in the wallet, the activity appears tied to a transaction. Contract terms still matter: a side payment that grows with the customer’s average token holdings would raise the separate question in section 14(2). The regulator can look through the flow of money rather than accept a marketing description.
A loyalty programme denominated in points creates a similar factual problem. Points earned once for each purchase are not automatically interest because the customer can later redeem them for goods. Points credited each day in proportion to a stablecoin balance have a different economic basis even if the issuer never uses the word “interest.” Conversion into tokens, cash or discounts affects how valuable the reward is, but the draft’s main distinction is why the reward accrued. Providers will need records showing completed payments and the calculation behind each award.
The proposals also leave ordinary competitive questions. A stablecoin issuer with large payment volume may be able to fund per-transaction rebates from processing revenue while a smaller rival cannot. A ban on holding yield does not equalize those budgets. It directs competition toward payment use and away from promising a return for merely parking money. The consultation is therefore consequential for card networks, fintech wallets and merchants as well as crypto exchanges.
How a programme could cross the line
Take a payment app offering a reward of one cent for every dollar spent at a participating shop. If the customer gets it only when a payment clears and holding more tokens does not change the reward, the programme looks like the transaction-based payment described in section 14(1). The example illustrates the clause; it is not a programme Canada has approved by name.
Change one condition. Suppose the app pays 4% a year on the coins left in a wallet and requires a monthly balance snapshot. The amount now grows with the size and duration of the holding. The transaction exception would no longer describe its central feature. Calling the payout points, perks or a membership benefit cannot change the calculation. The Finance Department’s explanatory statement expressly describes prohibited yield as interest on coins held, similar to a savings account.
A mixed campaign is harder. A user might receive 1% of each purchase but only after maintaining a minimum balance for a month. The payout has a transaction component and a holding condition. A company could restructure the terms so spending alone determines the rebate, or seek guidance on whether the issuer’s relationship with its app triggers the indirect-payment clause. The draft has no automatic safe harbour for a familiar credit-card-style programme merely because its advertisement uses the word “cashback.”
The Canadian Web3 Council’s September submission asked for clear treatment of rewards based on usage and transaction volume. It objected that an overly wide interpretation of indirect issuer payments could catch routine loyalty programmes. The government’s current draft accepts transaction rewards in principle while preserving the look-through test for issuer-funded holding yield. Both positions respond to a real design choice: a card payment incentive and an interest-bearing cash balance can be sold to the same customer through the same app.
Across the border, the U.S. OCC’s final GENIUS Act rules took effect on a separate timetable and removed a proposed presumption about some third-party arrangements. Its discussion likewise requires examination of the particular reward terms. The Canadian rule is a consultation under its own statute, so an American product’s treatment does not settle whether the same offer is allowed in Canada.
Reserves stay separate from rewards
An issuer can earn income on eligible reserve assets without being free to distribute that income to stablecoin holders as yield. The Finance Department proposes that the market value of reserves meet or exceed the par value of outstanding tokens at the end of every day. Reserve assets would be held with qualified custodians that are financial institutions domiciled in Canada, and separated from the issuer’s and custodian’s own property.
The custody requirement gives Canadian banks and trust institutions a significant role even where a fintech issues the token. The proposal does not mean a bank necessarily owns the stablecoin or that a customer holds a conventional insured bank deposit. Section 13 would bar issuer marketing that suggests the token is legal tender, a deposit, publicly insured or government-backed. A custodian’s involvement in managing reserve assets does not convert the issuer’s liability into the custodian’s deposit liability.
The Finance Department said issuers would report monthly to the Bank of Canada with a certified accountant’s opinion on the value and composition of outstanding coins and reserves. The daily backing condition and monthly review answer different questions. A monthly opinion can provide an independent check of the reserve at a reporting point; it cannot erase a shortfall that appeared during the month. The issuer’s own controls still have to maintain coverage each day.
Canadian banks are building another kind of digital money. Six large lenders announced a shared tokenized-deposit project in September, beginning with transfers among participating financial institutions. A tokenized deposit represents money already owed by its issuing bank, while a nonbank stablecoin relies on a separate pool of assets backing the issuer’s redemption promise. The legal liabilities and supervisory paths differ even if both can move through digital payment systems.
Section 12 of Canada’s Stablecoin Act excludes financial institutions issuing stablecoins from that Act, according to the Gazette’s explanation. Payment service providers handling qualifying bank-issued coins can still be brought into the Retail Payment Activities Act if the specified conditions are met. Treating the proposed rule as a universal licence for every bank-issued token would miss the way the bank and payment-provider regimes are divided.
Reserve composition matters during a redemption rush. Eligible assets may be safe under ordinary conditions yet need to be sold, transferred or allowed to mature to meet customer requests. The daily coverage rule tests value against outstanding liabilities, while the three-business-day deadline tests access to cash. One does not substitute for the other. An issuer could have enough assets on paper and still face settlement delays; a separate liquidity policy is supposed to address that gap.
Segregation addresses an insolvency question too. If reserve assets are mixed with a company’s general assets, its other creditors may complicate the route to redemption after a failure. The draft requires separation from the issuer’s and custodian’s own property and sets out how reserves may be held. A customer would still need to understand the legal claim, the administrator and the time it takes to distribute assets in a real failure. A reserve report is evidence of backing at a point in time, not a guarantee of uninterrupted access.
A redemption fee and an exchange spread should also be kept separate. The 1% cap applies to the issuer’s redemption fee. An exchange may quote a bid below par, and a user may face transfer or conversion charges elsewhere. Someone buying below par might be able to submit directly to the issuer only if eligible under its published process; otherwise the price gap can persist. The strongest practical disclosure would spell out who can redeem, through which channel, and when cash reaches the customer’s bank account.
Redemption is not an instant cash-out promise
The proposal would require an issuer to redeem any holder’s stablecoin on request, regardless of the amount, within three business days. Its redemption fee cannot exceed 1% of the value. On a C1,000redemption,1%isC10 before any other disclosed charges in the payment chain. The calculation is a ceiling, not a fee that every issuer will charge.
The government says the three-day period accommodates settlement of Canadian securities on T+1 and foreign-denominated securities on T+2, with time for processing. A business-day deadline is different from a 72-hour clock that keeps running through a weekend. The draft’s exact wording requires completion within three business days, and companies would have to explain their own steps in a published redemption policy.
An issuer may limit daily redemptions if it cannot meet all requests because liquidity is short in the markets where reserve assets trade. That exception sits alongside the general obligation; it is not permission to decline withdrawals whenever demand is inconvenient. The policy must describe circumstances where limits may be used and the payment methods available. Companies must publish a notice at least seven days before starting or raising redemption fees.
A coin can trade below par on an exchange even if its issuer promises redemption at par. The market buyer faces fees, time and eligibility requirements before cash arrives. A three-business-day right is a floor for an eligible holder’s legal claim, not a guaranteed instant bid on every exchange. Someone trying to spend the coin at a merchant may care about the market price and the payment app’s acceptance rules before they ever file a redemption request.
The Canadian-dollar CADD custody arrangement discussed in the consultation coverage shows that firms were already experimenting with regulated stablecoin distribution. Its existing approval and backing arrangements do not automatically grant registration under the proposed federal system. The new rules would create a Bank of Canada process for issuers in scope once the law is brought fully into force.
The distinction between issuer and distributor may be invisible to a customer. A Canadian app can present the wallet, handle identity checks and display a token issued abroad. The issuer backs and redeems the coin; the app may separately perform regulated payment functions. If the app offers a reward, its funding agreement can connect the two. The draft’s indirect-yield language means the issuer cannot assume that outsourcing the consumer interface removes its responsibility for a balance-based promotion. Conversely, a platform’s independent payment discount is not automatically proof that the issuer pays holding yield.
Consumers will see these rules through disclosure and access as much as through registration lists. They need to know the issuer’s legal name, the assets backing the redemption promise, the eligible redemption route and the nature of any reward. Calling a token “Canadian compliant” before the Bank of Canada has registered its issuer can blur the difference between an existing arrangement and the proposed federal regime. A reward offered by an intermediary also needs terms that identify who can change it and whether it survives a change in the platform’s relationship with the issuer.
Foreign coins and payment apps are included
Canada’s framework is not confined to stablecoins referencing the Canadian dollar. The Finance Department says foreign non-financial issuers making fiat-backed coins available to people in Canada, directly or indirectly, fall within the federal issuer system. Such firms may need to address Canadian reserves and custody requirements or seek an exemption where another jurisdiction’s rules are judged substantially similar.
The Gazette says the Bank of Canada’s governor could grant exemptions under section 14 of the Act when a provincial or foreign framework is substantially similar, subject to conditions. The Department promises further guidance on how it would assess those regimes. An overseas licence on its own is not an automatic passport into Canada, and the draft does not name a list of accepted foreign regulators.
Separately, the proposed amendments to the Retail Payment Activities Regulations would bring payment service providers performing payment functions with prescribed stablecoins into that oversight system. The issuer and a payments app can therefore have different obligations even when the same coin appears in a single consumer interface. If an app promises cashback, the issuer’s section 14 arrangement and the app’s own payment-service responsibilities should be examined separately.
A national-security review is built into registration. The draft gives the finance minister 60 days after receiving an application to decide whether to review it, with a possible 60-day extension, and a further specified period for the review if one begins. The review can lead to an instruction that the Bank of Canada refuse registration. Reserve adequacy alone will not decide whether an applicant qualifies.
The Bank of Canada would supervise registered issuers and could enforce breaches, including monetary penalties. The Gazette’s proposed schedule lists ranges up to C1millionforseriousviolationsandC10 million for very serious ones. A proposed penalty range does not mean a given rewards programme has already violated the law. The final text and any enforcement action would determine the outcome.
Registration is more than a reserve audit. The proposal gives the Bank of Canada information about ownership, governance, operational policies and a stablecoin’s terms, while the finance minister can intervene on national-security grounds. A company that meets the daily backing ratio could still need to resolve application or control issues. The prospect of a registered issuer offering a cashback campaign should not be read as permission for an unregistered distributor to skip its own payment-service requirements.
Foreign issuers face an especially practical question if a Canadian user holds a dollar token issued elsewhere. The coin may arrive through an exchange without the issuer directly soliciting that customer. The draft describes availability directly or indirectly and contemplates exemptions for substantially similar regimes. The Bank of Canada’s later guidance will matter for how issuers document the reach of their distribution and demonstrate that another regulator’s rules offer comparable protection. Until the exemption process exists, a foreign licence alone settles little.
Rewards themselves can be funded in different ways. A merchant may pay to acquire customers, a wallet may use its own marketing budget, or an issuer may share income earned on reserve assets. The last path becomes sensitive when a platform promises holders a return because the draft expressly looks at issuer arrangements. A contract showing who funds a programme, what triggers payment and whether balances influence the formula will be more informative than a screenshot advertising “rewards.” None of the illustrative structures has an automatic approval under a regulation that remains open for comment.
Banks and fintech firms disagree about paying holders
Some fintech firms want room to compete with banking products by passing reserve income to stablecoin users. Canadian financial institutions have supported a restriction on yield, concerned that an interest-paying payment token could draw balances away from deposits. The Finance Department’s regulatory analysis records those divergent views and its decision to preserve the prohibition while allowing rewards for activity.
The industry’s strongest case for rewards is not that every token should operate like a savings account. Payment networks regularly use rebates and loyalty programmes to bring merchants and customers onto a service. A rule that treats every incentive as yield could make it difficult for a stablecoin app to offer an ordinary payment promotion. Section 14(1) accommodates that case in the draft’s language.
The government’s strongest case for the holding restriction is that a token sold as a payment instrument should be fully redeemable at par, with liquid reserves and clear limits on how it is marketed. An issuer that promises a balance-based return may encourage customers to view the coin as an insured or deposit-like investment when it is neither. The draft’s marketing ban reinforces that distinction. These positions do not turn on whether a reward feels attractive to the customer; they turn on what economic activity the issuer pays for and which product the user believes they own.
Singapore’s proposed stablecoin framework has considered a similar interest-payment restriction, but its licensing and foreign-issuer rules are separate. International comparisons can show a common regulatory concern, not a single global rewards test. Canadian issuers and their partners have to fit their programmes to Canada’s final Act and regulations.
The consultation can still change the boundary
The December 23 deadline gives firms time to explain where the draft is clear and where an existing rewards model may sit between spending and holding. The Gazette asks for public feedback on the proposed regulations and the related payment-service amendments. The Stablecoin Act supplies the statutory yield prohibition, so comments on regulations cannot repeal that prohibition by themselves. They can influence how the transaction exception and issuer arrangements are written or clarified.
A company planning a launch should not advertise that its particular rewards product has received approval because the draft allows transaction-based payments in general. It can examine the contract linking issuer, platform and merchant, and disclose which action actually earns the customer money. If a payout rises with time and balance, it faces the statutory ban. If it arises only on a completed transaction, the draft’s express exception is relevant. Mixed programmes will need especially careful terms.
Canada has thus given the industry a proposed answer more useful than a simple “rewards banned” headline. Spending rewards can exist; balance yield paid by an issuer or channelled through its arrangements cannot. The precise boundary will be settled by the final text and by the way real products are funded, marketed and paid. Comments close on December 23, 2026, at 11:59 p.m. Eastern time.
What to watch
- Section 14 wording: Check whether final rules retain the transaction exception and the indirect issuer-arrangement language.
- Programme contracts: Look at what action earns a reward and whether the issuer funds a platform’s balance-based payout.
- Registration guidance: Watch for the Bank of Canada’s application opening and its criteria for substantially similar foreign or provincial regimes.
- Reserve and redemption terms: Compare dated daily coverage, Canadian custody, three-business-day rights and any proposed redemption fee.
- Consultation deadline: Written comments on the draft are due December 23, 2026, at 11:59 p.m. Eastern.
FAQ
Can a Canadian stablecoin issuer pay interest to holders?
The proposed framework retains the Stablecoin Act’s prohibition on issuer-paid yield for holding the token. It would permit a reward tied only to a transaction.
Can customers receive cashback when they spend a stablecoin?
Section 14(1) says a transaction-based reward that is not tied to holding is not interest or yield. A specific cashback programme’s terms and issuer funding arrangement still determine how it fits.
Can an issuer pay a platform to give users interest?
The draft treats certain issuer arrangements that allow or encourage another person to pay holding yield as indirect issuer payments. Routing the payout through an app does not automatically avoid the ban.
When does Canada’s consultation close?
The Canada Gazette gives December 23, 2026, at 11:59 p.m. Eastern as the comment deadline.
How fast must a stablecoin be redeemed?
The proposal calls for redemption within three business days after a holder’s request. It permits specified daily limits if reserve-market liquidity is insufficient to meet all requests.
What is the proposed maximum redemption fee?
An issuer could charge no more than 1% of the redeemed amount. For C1,000,themaximumunderthatcapwouldbeC10.
Would a Canadian bank hold the reserve?
Qualified custodians must be Canadian-domiciled financial institutions under the draft. Custody there does not make the nonbank token an insured bank deposit.
Do foreign stablecoin issuers fall under the proposal?
Foreign non-financial issuers making fiat-backed coins available to Canadians can be covered. An exemption may be possible for substantially similar foreign rules, subject to the Bank of Canada’s decision. This is educational analysis, not investment advice.
Disclaimer: This article is for information and educational purposes only and does not constitute financial or investment advice. Figures reflect regulatory filings and reporting available at the time of writing and change with each disclosure. Nothing here is a recommendation to buy, sell, or hold any security or asset. Always do your own research. Information is accurate as of October 27, 2026.
