Canada’s banking regulator gave an update on tokenized deposits.
The Office of the Superintendent of Financial Institutions released a statement on the regulatory landscape of tokenized deposits.
Specifically, this clarified that tokenized deposits are “not legally distinct” from existing deposits held at banking institutions.
This is a necessary confirmation as domestic financial institutions, services providers, and global banks test tokenized deposits and seek to send transfers on Swift’s ledger network.
A few months back, the Department of Finance Canada also released an interpretation on Canada’s stablecoin framework and issuance activities.
Do Tokenized Deposits Need Regulation?
Tokenized deposits are essentially the same deposits held at banks.
The key difference is that tokenized deposits are transferred on blockchain rails inside the originating bank, between the bank’s numerous entities, or to and from other banks.
It is still a claim on the bank’s balance sheet and is likely to adhere to existing national and international banking laws, AML/KYC verifications, as well as reporting standards.
Also, deposits in licensed and regulated banking institutions typically have a certain amount of insurance on the underlying sum in an individual’s account.
In Canada, the Canada Deposit Insurance Corporation (CDIC) offers $100K CAD cover, meaning if there’s a loss of funds at a member bank, customer balances are protected up to that amount.
In the U.S., the Federal Deposit Insurance Corporation (FDIC) insures funds up to $250K limit.
Recently, FDIC released its own clarification as part of the Genius and Clarity Act developments stablecoins are not FDIC insured.
Banks like VersaBank with presence in both Canada and the U.S. are already developing tokenized deposits to make payments and settlement more efficient.
