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Canada’s leading investment regulatory authority has introduced a new set of regulations aimed at enhancing the security and management of crypto assets, as regulators seek to mitigate losses associated with hacks, fraud, and inadequate governance.
Key Takeaways:
- Canada has implemented new interim rules for crypto custody to reduce losses from hacks and fraud.
- Custodians now encounter tiered restrictions based on their capital strength, oversight, and resilience.
- The framework enforces stricter governance, insurance, and audit standards while fostering innovation.
The Canadian Investment Regulatory Organization (CIRO) on Tuesday released its Digital Asset Custody Framework, detailing specific expectations for dealer members operating crypto asset trading platforms.
This framework is intended as a temporary measure and will be enforced through membership terms and conditions, enabling CIRO to respond more swiftly to emerging risks while longer-term regulations are formulated.
Canada Introduces Tiered Custody Rules
CIRO stated that the framework directly tackles the “technological, operational, and legal risks unique to digital assets,” utilizing insights from previous failures, including the 2019 collapse of QuadrigaCX, which left numerous customers unable to retrieve their funds.
Central to the new system is a tiered, risk-based framework for crypto custodians. Under this model, custodians are categorized into one of four tiers based on criteria such as capital strength, regulatory oversight, insurance coverage, and operational resilience.
Top-tier custodians are permitted to hold up to 100% of client crypto assets, whereas lower-tier providers face increasingly stringent limits, with Tier 4 custodians restricted to 40%.
Dealer members opting to manage assets internally are restricted to holding no more than 20% of the total value of client crypto.
The framework also enforces a comprehensive set of operational requirements. These encompass formal governance policies regarding private key management, cybersecurity measures, incident response protocols, and third-party risk management.
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CIRO has published a new Digital Asset Custody Framework, establishing 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
Custodians are required to maintain insurance, undergo independent audits, submit security compliance reports, and perform regular penetration testing.
Custody agreements must clearly define liability in instances where losses arise from negligence or avoidable failures.
CIRO indicated that the approach aims to be balanced, providing stronger investor protection while allowing for innovation and competition.
The regulations were developed in collaboration with crypto trading platforms, custodians, and other industry stakeholders, and were benchmarked against global practices.
Canada Steps Up Crypto Enforcement After Major FINTRAC Fines
This initiative comes amid increased scrutiny of crypto compliance in Canada. In October, the country’s financial intelligence agency, FINTRAC, imposed a fine of approximately $126 million on local exchange Cryptomus for failing to report suspicious transactions linked to darknet markets and fraud.
Earlier in the year, FINTRAC also penalized offshore platforms KuCoin and Binance for similar violations.
As a self-regulatory organization, CIRO possesses the authority to investigate misconduct among its members and enforce sanctions, including fines and suspensions.
As previously reported, Canada is preparing to introduce its first comprehensive framework for fiat-backed stablecoins under the 2025 federal budget, closely following the regulatory approach adopted by the United States earlier this year.
The Bank of Canada is anticipated to allocate $10 million over two years, commencing in fiscal year 2026–2027, to oversee the implementation.
This development follows just months after the US enacted its GENIUS Act in July, a significant stablecoin legislation that intensified global regulatory momentum.
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