Canadian Regulator Establishes Stricter Crypto Custody Standards to Mitigate Losses

By: crypto insight|2026/02/05 05:00:02

Key Takeaways:

The Canadian Investment Regulatory Organization (CIRO) introduces a Digital Asset Custody Framework aimed at enhancing the security and management of crypto assets.
A tiered custody model is implemented, categorizing custodians into four levels based on factors like capital strength and regulatory oversight, impacting the percentage of assets they can hold.
The framework includes extensive operational requirements for custodians, such as cybersecurity measures and insurance mandates to prevent negligence-related losses.
These new measures come amid increased scrutiny in the Canadian crypto market, with authorities imposing significant fines on exchanges for regulatory breaches.
Canada plans to launch the first comprehensive fiat-backed stablecoin framework by 2025, aligning its regulatory approach with global standards.

WEEX Crypto News, 2026-02-04 16:02:57

Introduction to New Regulatory Measures

Canada’s primary investment oversight body, the Canadian Investment Regulatory Organization (CIRO), recently unveiled a robust set of guidelines to enhance how digital assets are managed and secured. As the spotlight on digital currency continues to intensify globally, these new regulations aim to curb the substantial losses often tied to cyber-attacks, fraudulent activities, and governance deficiencies. The Digital Asset Custody Framework, released by CIRO, outlines stringent standards for custodian members that facilitate crypto trading platforms within Canada. This proactive adjustment underscores the nation’s commitment to fortifying its crypto market against potential emerging threats, while considering broader international practices.

Understanding the Tiered Custody System

One of the most notable elements of the CIRO framework is its adoption of a tiered custody model. This structure categorizes custodians into four distinct tiers. These tiers help classify custodians based on their financial robustness, oversight by regulatory bodies, insurance coverage, and their operational resilience. Top-tier custodians enjoy the capability to hold up to 100% of client crypto assets, reflecting their higher ability to manage risks and protect assets. Conversely, Tier 4 custodians face stiffer restrictions, unable to manage more than 40% of client assets, indicating a limitation in their risk management capabilities.

How assets are managed internally by trading platforms is also heavily regulated under this framework. Platforms that opt to custody their assets internally cannot exceed holding 20% of the total client asset value. This ensures operational focus is maintained on third-party custodian security rather than internal procedures that might be less secure or less regulated.

The integration of this tiered approach draws inspiration from lessons learned in previous failures, such as the collapse of QuadrigaCX in 2019. This high-profile breakdown showcased the consequences of inadequate asset management, leaving countless customers without access to their held funds.

Comprehensive Operational Requirements

CIRO’s custody framework doesn’t just stop at categorizing custodians; there are explicit operational standards all custodians must adhere to. These guidelines include detailed governance policies that address key management, cybersecurity protocols, incident response planning, and third-party risk control. This multifaceted approach aims to close vulnerabilities we’ve seen exploited by malicious entities in the past.

Operational standards extend into ensuring custodians carry adequate insurance against potential losses. Independent audits are mandated to regularly verify compliance with these new regulations, alongside the requirement for security compliance reports and regular penetration testing. This broad spectrum of checks and balances is designed to hold custodians accountable and reinforce investor confidence in their security measures.

Crucially, custody agreements under this framework must clearly outline liability terms in incidents where negligence or preventable mishaps lead to asset losses. This aspect of the framework protects investors and ensures clarity on consumer protection in possible security breaches.

Ensuring Balance Between Protection and Innovation

While CIRO’s framework emphasizes stringent security measures and vigilant oversight, it also seeks to strike a critical balance. There is a deliberate effort to ensure that these measures protect investors without stifling innovation or undercutting the competitiveness of the Canadian market. The rules were shaped with considerable input from a diverse array of stakeholders, including crypto trading platforms, custodians, and industry experts, and were further benchmarked against international standards. This ensures that while security is prioritized, the framework remains agile and impactful without hindering technological progression in the industry.

Rising Scrutiny and Enforcement in Canada’s Crypto Landscape

The introduction of these measures comes at a time when Canadian regulatory bodies have heightened their focus on compliance within the crypto sector. The country’s financial intelligence unit, FINTRAC, has taken a firmer stance on compliance failures, exemplified by its recent enforcements. Lately, FINTRAC levied significant fines on local exchange Cryptomus to the tune of $126 million for inadequacies in preventing suspicious transactions related to darknet markets and various fraudulent schemes. Other notable exchanges, such as KuCoin and Binance, have similarly faced penalties for compliance oversights.

Given its self-regulatory role, CIRO holds the prerogative to probe incidences of misconduct among members, with authority to levy sanctions, which may include fines or suspensions. This regulatory zeal underscores Canada’s firm stance on maintaining integrity and accountability within the crypto domain.

Pioneering Stablecoin Regulations

Looking further afield, Canada is on the verge of launching a pioneering framework for fiat-backed stablecoins by 2025. This initiative parallels regulatory initiatives seen in the United States and represents Canada’s commitment to stay at the forefront of global regulatory trends. The Canadian government plans to allocate $10 million towards establishing supervision over this program from the fiscal year 2026, reflecting the country’s dedication to embracing the evolving financial ecosystem in a responsible and state-regulated manner.

For those involved in crypto trading and investments in Canada, these evolving regulations herald a transformative phase. They offer a solid foundation for safeguarding investors while embracing the potential that blockchain and digital currency technologies provide. As these measures unfold, Canada positions itself as a leader in the regulatory landscape, blending protection, innovation, and forward-thinking strategies.

FAQs

How does the new framework from CIRO affect crypto custodians in Canada?

The CIRO’s new framework categorizes crypto custodians into four tiers based on factors such as financial strength and regulatory oversight. This classification impacts the amount of client assets they are authorized to hold, ranging from up to 100% for top-tier custodians to a cap of 40% for those in Tier 4. These measures are designed to mitigate risks and enhance asset protection standards across the board.

What lessons from past failures, like QuadrigaCX, have influenced these regulatory changes?

The collapse of QuadrigaCX in 2019 exposed significant vulnerabilities in crypto asset management, leading to substantial customer losses. The new regulations address these risks by enforcing stricter custody controls and operational protocols. By drawing on these historical lessons, Canada aims to avoid similar catastrophic failures.

What operational requirements are imposed on crypto custodians under the new rules?

Custodians are required to adhere to comprehensive operational mandates that include robust private key management, cybersecurity measures, regular audits, and detailed incident response protocols. Additionally, they must have insurance coverage and conduct regular penetration testing to fortify against unauthorized breaches.

How does the framework balance security and innovation?

While the framework prioritizes investor protection through stringent rules, it also considers the necessity of maintaining a space for innovation and competition in the market. By consulting with a range of stakeholders and aligning with global standards, the framework aims to secure the ecosystem without stifling its growth or technological advancement.

What does the introduction of a comprehensive stablecoin framework mean for Canada’s financial landscape?

The Canadian government’s decision to roll out a detailed stablecoin framework reflects an effort to embrace the potential of digital currencies within regulated limits. This initiative aligns Canada with global financial regulatory practices, presenting the country as a forward-thinking participant in the digital asset sphere while aiming to enhance investor protection and system integrity.

Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:

To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:

Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:

I. Clarify the essential attributes of virtual currency, Real-World Assets tokenization, and related business activities

(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.

The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.

A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.

（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.

Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.

II. Sound Work Mechanism

(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.

The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.

(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.

III. Strengthened Risk Monitoring, Prevention, and Disposal

(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.

(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.

(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.

(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.

（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.

（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.

（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.

（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.

IV. Strict Supervision of Domestic Entities Engaging in Overseas Business Activities

（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.

（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.

(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.

V. Strengthen Organizational Implementation

(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.

(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.

VI. Legal Responsibility

(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.

(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.

This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.

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