FINTRAC Stablecoin Issuer Obligations: What Tether, USDC, and Other Issuers Need to Know About Canada's Upcoming Stablecoin Act

Canada is on the brink of introducing one of the world's most comprehensive regulatory frameworks for fiat-backed stablecoins. Although the legislation is not yet passed, the Stablecoin Act—introduced within the 2025 Budget Implementation Bill—suggests a potential direction: stablecoin issuers operating in Canada may face direct regulatory oversight, redemption requirements, reserve verification rules, and anti-money-laundering reporting obligations to FINTRAC.

For issuers like Tether (USDT), Circle (USDC), and Paxos (USDP), the implications could be significant.

The time to begin preparing may be right now.

This article provides a deep-dive into the evolving regulatory landscape, and what global stablecoin issuers may need to consider as they prepare for potential FINTRAC reporting, AML compliance, and Canadian market access under the proposed new regime.

Why Canada Is Creating a "Stablecoin Issuer" Reporting-Class

The Stablecoin Act defines a stablecoin issuer as:

This broad definition suggests Canada may intend to regulate:

• Canadian issuers
• Foreign issuers
• Any issuer whose stablecoins circulate into the hands of Canadians through exchanges, OTC desks, wallets, or apps

The legislation introduces a new regulatory perimeter where stablecoin issuers become reporting entities, similar to money services businesses (MSBs) or payment service providers, but the enforcement mechanism does not appear to be clearly outlined yet.

Direct Redemption: The Possible Trigger for FINTRAC Reporting

The proposed Act appears to require issuers to:

• Offer direct redemption at par value
• Maintain a 1:1 reserve of assets
• Publish a formal redemption policy
• Provide this policy to the Bank of Canada

If redemption must be offered to the public, every redeemer would become a KYC-identified customer.

This could create a direct link between:

1. The on-chain address redeeming stablecoins
2. The verified identity of the Canadian user
3. The issuer's potential obligation to file FINTRAC reports

This could form the foundation of a FINTRAC stablecoin issuer reporting regime.

What FINTRAC Reporting Could Mean for Stablecoin Issuers

If the Act is fully implemented, stablecoin issuers operating in Canada will need to comply with the core requirements of the PCMLTFA (Proceeds of Crime and Terrorist Financing Act).

The reporting obligations could potentially include:

1. Suspicious Transaction Reports (STRs)

Likely filed when an issuer detects actual or suspected money laundering or terrorist financing related to a minting or redemption event.

2. Large Virtual Currency Transaction Reports (LVCTRs)

Likely filed when the issuer receives virtual currency valued at $10,000 CAD or more within a 24-hour period.

3. Electronic Funds Transfer Reports (EFTs)

Likely filed when international fiat transfers of $10,000 CAD+ occur in or out of the issuer's control (e.g., redemption payouts).

4. Terrorist/Listed Property Reports

Likely filed if a redeemer's address or identity matches a listed entity.

5. Ongoing AML Program Requirements

Issuers would likely need to maintain a full AML compliance program.

Why Issuers Like Tether and Circle May Need to Adapt

Today, the largest stablecoin issuers generally:

• Do not provide retail redemption, except for institutional clients or at very high minimums
• Rely on exchanges as the liquidity layer
• Do not file FINTRAC reports
• Do not operate as MSBs in Canada

Under the new Stablecoin Act, this may no longer be viable.

To maintain Canadian market access, it appears as if issuers will eventually need to:

• Register or seek recognition under the new issuer regime
• Build KYC workflows for Canadian redeemers
• Build STR/LVCTR reporting capabilities
• Publish and maintain a redemption policy
• Provide reserve information to the Bank of Canada
• Operate compliant fiat rails for redemption payouts

Issuers that refuse to comply could possibly face delisting across all regulated Canadian platforms, but exact enforcement mechanisms are not yet clear.

How Enforcement May Actually Work

It is possible that Canada does not need to force Tether or Circle to open a Canadian office.

Instead, regulators could enforce compliance through:

1. Canadian exchanges and custodians

Platforms could be prohibited from listing non-compliant stablecoins.

2. Banks and payment processors

They could be barred from handling settlement for non-compliant issuers.

3. AML program requirements

MSBs, PSPs, and custodians could not be allowed to support non-compliant coins.

This approach could mirror the current CSA (Canadian Securities Administrators) model, where many exchanges had to delist USDT due to disclosure and reserve issues.

What Stablecoin Issuers May Want to Consider Doing Now

Even though the proposed Stablecoin Act is not yet passed, issuers may want to consider beginning preparation:

1. Assess exposure to Canadian users

Consider determining mint/redemption flows and usage among Canadians.

2. Consider building a Canadian-compliant redemption workflow

This could include KYC, sanctions screening, blockchain analytics, and fiat payout capabilities.

3. Consider preparing to register as a reporting entity

Work toward FINTRAC reporting capabilities, including LVCTR and STR readiness.

4. Consider establishing a Canadian AML regime

This could involve drafting or adapting:

• AML policies
• KYC procedures
• Recordkeeping systems
• On-chain wallet screening rules

5. Consider engaging Canadian regulators early

Outreach to FINTRAC, the Bank of Canada, and Treasury Board may be advisable for large issuers.

Final Thoughts: FINTRAC Could Be Central to the New Stablecoin Regime

If implemented, the Stablecoin Act could create a new category of AML-regulated entities: stablecoin issuers.

Issuers like Tether, Circle, Paxos, and other foreign providers could potentially be required to:

• KYC redeemers
• Monitor source of funds
• Screen blockchain addresses
• File FINTRAC reports
• Cooperate with examinations
• Maintain 1:1 reserves
• Enable direct redemption

This could represent a major shift from today's model. Early planning may be prudent.