Canada Imposes Tiered Crypto Custody Limits Affecting 4,000+ Clients
Canada’s Investment Regulatory Organization (CIRO) has introduced a Digital Asset Custody Framework to improve crypto asset protection.
Quick overview
Canada’s Investment Regulatory Organization (CIRO) has introduced a Digital Asset Custody Framework to improve crypto asset protection. These interim rules address risks like hacks, fraud, and poor governance, and let regulators respond to new threats as they arise.
The framework uses a tiered custody model, grouping custodians into four risk categories. These are based on factors like capital strength, insurance, oversight, and how well they can handle operations.
- Tier 1 custodians are allowed to hold up to 100% of client crypto assets.
- Tier 4 custodians are limited to holding 40% of client assets.
- Dealer members who keep custody in-house can hold a maximum of 20% of client assets.
These rules are meant to prevent problems like the 2019 QuadrigaCX collapse, when thousands of clients lost access to their funds.
Operational Standards for Custodians
CIRO’s framework outlines clear rules for how crypto custodians should operate, including standards for governance, cybersecurity, and legal responsibility. The requirements include:
Canada’s CIRO has officially formalized its interim Digital Asset Custody Framework.
The new rules establish a tiered, risk-based system for how investment dealers must safeguard client crypto assets to prevent fraud and hacking losses. #CryptoRegulation pic.twitter.com/6cPaeOI7Oo
— Conor Kenny (@conorfkenny) February 4, 2026
https://www.ciro.ca/newsroom/publications/notice-ciros-digital-asset-custody-framework/
- Formal private key management and cybersecurity protocols
- Regular penetration testing and independent audits
- Comprehensive insurance coverage and risk management
- Clear liability clauses for preventable losses
The rules are designed to protect investors while still encouraging innovation in the industry. They make sure custodians meet high standards but do not block competition.
Canada Expands Crypto Oversight Nationwide
This framework comes as part of wider enforcement efforts. In October, FINTRAC fined Cryptomus $126 million for not reporting suspicious activity. Earlier in the year, KuCoin and Binance, both offshore exchanges, received similar penalties.
As a self-regulatory group, CIRO can fine or suspend members who break custody rules. Canada also plans to bring in rules for fiat-backed stablecoins by 2025, using a model like the U.S. GENIUS Act. The Bank of Canada will spend $10 million over two years to oversee the rollout, starting in 2026 and 2027.
With these steps, Canada aims to be a global leader in protecting crypto investors. The country is combining strong oversight with a risk-based approach that addresses new digital asset threats.
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