Canada Proposes Direct Stablecoin Redemption with 1% Fee Cap

Canada's stablecoin proposal, published Oct. 24, would allow covered retail holders to request repayment directly from issuers without a minimum redemption amount. Proposed section 15 would normally require issuers to complete redemptions within three business days and would cap issuer redemption fees at 1%. The Stablecoin Act received royal assent March 26, but the Act's core provisions are not yet in force. The government's impact statement identifies fall 2027 as the intended implementation period.

The Act would require issuers to redeem stablecoins at face value in the currency the stablecoin tracks. USDC redemption at face value means payment in U.S. dollars. Canadian holders seeking Canadian dollars would still require an appropriate currency-conversion or payment arrangement. Actual issuer fees and the holder's banking arrangements would determine direct-redemption costs within the proposed issuer fee ceiling. Issuers would have to publish website notices at least seven days before introducing or increasing redemption fees. Issuers' redemption policies would also have to explain payment methods and the circumstances permitting daily limits, helping holders assess the service before using it.

The Act would cover domestic and foreign issuers making stablecoins available, directly or indirectly, to purchasers in Canada where actual or reasonably expected uses cross provincial or international borders. Proposed section 3 would determine Canadian purchaser location through usual residence, head office or principal place of business, rather than citizenship alone. The Act excludes central-bank issuers and makes exclusions for financial institutions and closed-loop arrangements dependent on regulations. The Governor of the Bank of Canada could grant exemptions, potentially with conditions, where provincial or foreign requirements are substantially similar.

Circle's terms for USDC holders outside the European Economic Area, updated Oct. 15, name Circle Internet Financial, LLC as issuer and condition direct redemption on an eligible, registered Circle Mint account in good standing. Circle Mint serves institutions and registered distributors in supported regions, while excluding individuals seeking personal use. Applicants undergo background, identity, know-your-customer and sanctions checks. Circle's Mint user agreement requires institutional customers to link a verified bank account whose account-holder name matches the verified Mint account. Circle offers wire-based minting and redemption, while SEPA and banking-network transfers require participating banks in limited regions. Circle's advertised instant settlement also depends on participating-bank programs.

The proposal's wording covering any holder implies wider redemption access at covered issuers. Circle's Mint page identifies Circle National Trust as a custodian rather than a USDC issuer. Circle National Trust's bank charter therefore does not, by itself, establish whether Circle Internet Financial, LLC would be excluded from Canada's framework. A future Canadian registration or exemption decision would be more consequential than treating Circle's separate entities as interchangeable.

The government's impact statement says the three-business-day redemption period allows for reserve-security settlement and operational processing. The proposal sets no separate deadline for an external recipient bank to make redemption proceeds available. Circle's agreement separately addresses delays attributable to external banks or payment networks. Proposed section 15(2) would allow daily redemption limits only when liquidity shortages in markets for an issuer's reserve assets prevent the issuer from satisfying all requests. The exception would override the ordinary minimum-amount and timing requirements but preserve the 1% fee ceiling.

Once effective, the Act would require reserves worth at least the outstanding stablecoins' face value, held in the reference currency or qualifying liquid assets. The Act would separate reserves from claims by issuer and custodian creditors, except for holders' redemption claims. The proposal permits demand deposits, short-term government debt, qualifying money-market funds and specified overnight reverse repurchase agreements. The proposal also permits overnight repurchase agreements solely to obtain reference currency for redemptions. Reserve segregation would protect holders' claims without making stablecoins insured bank deposits, and the Act would prohibit covered issuers from claiming otherwise.

Direct redemption could give covered retail holders another option when selling tokens to other market participants is unattractive. Circle's terms distinguish the conditional commitment to redeem at face value from prices on third-party platforms, which Circle does not control. The consultation lasts 60 days from publication. Proposed transitional relief would let existing issuers that apply within 30 days of commencement continue issuing until notification of registration or refusal. Transitional relief would end on day 31 for issuers that do not apply. The registration transition would not suspend redemption obligations. Final rules, entity-specific decisions and disclosed payment arrangements will determine the practical usefulness of direct redemption, including during reserve-market liquidity shortages.