Canada Tightens Crypto Custody Rules to Protect Investors

Highlights:

• CIRO introduces rules to prevent losses from hacking, fraud, and poor management.
• Framework uses four tiers, setting limits based on capital, insurance, and oversight.
• Canada plans full stablecoin rules, aiming for faster, safer, and cheaper payments nationwide.

Canada’s investment watchdog has made new rules for digital asset custody. These rules aim to stop losses from hacking, fraud, and poor management. On Tuesday, the Canadian Investment Regulatory Organization (CIRO) published its Digital Asset Custody Framework. It explains clear expectations for dealers running crypto trading platforms. For now, the framework will be enforced through membership terms. This allows regulators to act quickly while permanent rules are being created.

CIRO has published a new Digital Asset Custody Framework, setting clear expectations for the custody of #digitalassets by Dealer Members operating  #cryptoplatforms (CTPs) in Canada. Read more in our news release: https://t.co/E0MFRnwnfN pic.twitter.com/3hzlg4yZ2u

— CIRO / OCRI (@CIRO_OCRI) February 3, 2026

CIRO Sets Risk-Based Rules to Protect Crypto Investors

The framework deals with technological, operational, and legal risks unique to digital assets. CIRO pointed to the 2019 collapse of QuadrigaCX as a key lesson. That event left thousands of Canadians without access to their savings. The new rules aim to protect investors while still allowing innovation in the crypto sector.

The framework uses a tiered, risk-based system for custodians. There are four tiers. Each tier depends on capital, insurance, regulation, and operational strength. Top-tier custodians may hold up to 100% of client assets. Tier 4 custodians may hold only 40%. Dealers managing custody internally must follow stricter rules, keeping client crypto assets under 20%.

Custodians must meet new requirements. They must implement strong governance, including cybersecurity, incident response, and third-party risk management. There should also be insurance and independent audits, compliance reports, and penetration testing. The agreement should specify liability for losses due to negligence and preventable failures.

CIRO was built on a risk approach. It protects investors and promotes innovation and competition. Custodians and trading platforms assisted in creating the guidelines that conform to international norms.

Canada Tightens Crypto Rules and Prepares Stablecoin Framework

Crypto compliance in Canada is under close watch. In October, FINTRAC fined local exchange Cryptomus about $126 million for not reporting suspicious transactions tied to darknet markets and fraud. Earlier this year, FINTRAC also penalized offshore platforms KuCoin and Binance for similar breaches. CIRO, a self-regulatory body, can investigate members and impose fines or suspensions. Its new framework shows a stronger focus on accountability after repeated compliance failures.

Canada is also preparing its first full framework for fiat-backed stablecoins under the 2025 federal budget. The Bank of Canada plans to spend $10 million over two years from 2026 to 2027 to oversee stablecoin regulations. This shows the government recognizes digital assets’ growing role and the need for strong oversight.

Canada’s move follows the U.S. GENIUS Act, which regulates stablecoins. The government has not set a specific timeline, but the plan is part of modernizing payments. The goal is to make transactions faster, cheaper, and safer for Canada’s 41.7 million people. The Bank of Canada will follow international standards for the new rules. Experts say using similar reserve and risk rules could strengthen crypto legitimacy and make cross-border stablecoin transactions easier and quicker.

Canada just made a big step forward.

Today’s federal budget includes new guidance on stablecoin regulation, signaling progress toward embracing faster, cheaper, and borderless payments.

With 60,000 advocates strong, Stand with Crypto Canada will continue to be a driving… pic.twitter.com/C0ZiO3GLsR

— Stand With Crypto Canada (@StandWCrypto_CA) November 4, 2025