Canada Says a Tokenized Deposit Is Still a Deposit

A corporate treasurer keeps Canadian dollars at several of the country's largest banks. More of that cash now moves on instructions from treasury software, and her banks have said they will explore moving deposits between them in digital form. Before her company relies on that, she needs to know whether the money is still the same deposit with the same claim on the same bank.

On September 10, Canada's banking regulator answered in a single line. The Office of the Superintendent of Financial Institutions wrote that "tokenized deposits are, for example, not legally distinct from traditional deposits."

That settles the legal status. OSFI set what the deposit costs the bank to hold in a second document it finalized the same day, a capital and liquidity guideline. Its deciding condition is whether the bank knows who holds the deposit at every moment.

The liquidity rule turns on the holder

The 2027 guideline treats a tokenized deposit the same way as an ordinary one when it carries the same rights. OSFI's label for that category is Group 1a. The guideline's liquidity section then asks one more thing of the bank that issues it.

If the bank can identify the holder at all times, it assigns liquidity treatment the usual way, based on what kind of customer the holder is. OSFI adds one exception. The bank can't count these liabilities as stable retail deposits, the category the liquidity rules treat as least likely to leave during a stress.

If the bank can't identify the holder at all times, the guideline tells it to treat the deposit as unsecured wholesale funding from other legal entities. That category carries harsher treatment. It applies even when the actual customer would have qualified for better.

OSFI also kept room to go further. It can impose stricter treatment if a deposit's design adds liquidity risk. Its examples include reliance on unregulated third parties to hold the deposits or operate the system they move on.

The reason lies in how a tokenized deposit moves. An ordinary deposit sits in an account the bank opened for a customer it has vetted. A tokenized deposit can pass from one holder to another. Each transfer is a chance for the bank's picture of its own funding to fall out of date. A bank that can't say who holds its liabilities can't estimate how fast they would leave in a stress.

Same rights, with proof on request

To qualify for Group 1a at all, a tokenized deposit has to give the holder the same legal rights as the ordinary version. That includes rights to cash flows and claims in insolvency. Nothing in its design can stop the bank from paying in full when payment is due.

The bank also has to show its work. The arrangement must document settlement finality so it's clear when a transfer becomes irrevocable. The system it runs on has to make every transaction and every participant traceable. The bank must complete a legal review of the arrangement and hand it to OSFI when asked.

The capital add-on for infrastructure risk starts at zero. OSFI said it may raise it if it sees weakness in that infrastructure. The guideline takes effect on November 1 for banks with an October 31 year-end, which includes the six largest. Banks whose year ends December 31 follow on January 1, 2027.

Six banks plan to move deposits between them

On September 22, Canada's six largest banks announced a joint project to explore digital money, starting with tokenized deposits. The first phase would move Canadian-dollar deposits between the participating institutions. The banks described the work as exploration.

A researcher at the University of Toronto's Rotman School told BNN Bloomberg she expects large companies to be the first users. Those are firms with accounts across several of the banks, moving large sums between them.

Each of those movements changes the answer to OSFI's question. A bank that reconciles its books at the end of the day can tell a supervisor who held a deposit yesterday. The guideline asks for more. A deposit that moves between banks at any hour, often on instructions from treasury software or an AI agent, can change hands several times before the next reconciliation. For the bank to name the holder at all times, its record has to update every time the money moves.

A treasurer needs the same thing from the other side. A company whose agents move cash across six banks wants its own view of where each dollar sits, hour by hour. That view should match what each bank would tell OSFI.

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Deposits and stablecoins sit on separate tracks

Canada is writing rules for stablecoins on a different track. The Stablecoin Act received royal assent on March 26 and puts non-bank issuers under Bank of Canada supervision. It isn't in force yet. The government expects the framework to take effect in 2027. The Act largely leaves federally regulated banks outside its scope. Bank-issued deposits stay with OSFI.

The guideline also keeps a label from deciding the category. A bank's digital payment product backed by its general assets can still qualify as a tokenized deposit even if people call it a stablecoin, provided it meets every condition. OSFI classifies it by what it is.

For a treasurer, the practical difference is who stands behind the money. A tokenized deposit is a claim on a regulated bank. A stablecoin is a claim on a non-bank issuer, backed by a pool of reserve assets.

What OSFI left open

OSFI's statement answers a legal question. Each product still goes through supervision. Banks have to meet existing rules on technology and third-party risk and talk to their OSFI lead supervisors before launching anything new. The six-bank project is still a plan.

Most of the practical weight falls on the words "at all times." A bank that wants ordinary liquidity treatment for its tokenized deposits has to identify the holder at 3 a.m. on a Sunday. By then an agent may have moved the money twice since Friday. OSFI hasn't said how supervisors will test that. Each bank will find out when it brings a product to its lead supervisor.