CIRO Unveils Interim Crypto Custody Framework in Canada

The Canadian Investment Regulatory Organization (CIRO) has formalized an interim framework to govern the custody of crypto and tokenized assets, signaling a pragmatic approach to investor protection while broader, permanent crypto-specific rules are being developed. In a Tuesday notice, CIRO outlined how dealer members must safeguard client holdings and comply with supervisory expectations as trading platforms operate in a still-evolving market. The framework focuses on custody limits, segregation standards, reporting obligations and tiered requirements for third-party crypto custodians, all implemented through membership terms rather than a revision of CIRO’s core rulebook. The move aims to provide regulatory clarity and risk controls in the near term, with an eye toward informing future permanent standards as markets mature. The notice is available here: CIRO Digital Asset Custody Framework.

The policy deliberately binds dealer members to the custody framework through membership conditions, rather than sweeping changes to the rulebook. This allows CIRO to respond quickly to emerging risks while policy work continues in parallel. The essential objective is to shield investors as crypto markets grow and evolve, without slowing the development of a cohesive, nationwide regulatory approach. The framework also signals that certain elements could be adopted or harmonized into permanent rules as the market structure matures and governance practices improve across the sector.

Tiered custody model and capital requirements

Under the framework, dealer members may place assets either with CIRO-approved digital asset custodians or under internal custody arrangements that meet baseline standards. A tiered custody model links capital, insurance, governance and technology-assurance requirements to the proportion of client assets that a custodian is permitted to hold. Tier 1 and Tier 2 custodians may hold up to 100% of a dealer’s crypto assets, but this is paired with stricter capital thresholds and enhanced assurance standards, including external cybersecurity reviews. Lower-tier custodians face more restrictive caps, with Tier 3 custodians allowed to hold up to 75% and Tier 4 custodians up to 40% of a dealer’s crypto assets. Dealers’ internal custody is capped at 20% of client crypto assets. These caps are designed to calibrate risk concentration by custodian type while preserving operational flexibility for dealers as the landscape evolves.

Capital requirements also scale by risk and jurisdiction, with higher thresholds imposed on foreign entities to address cross-border enforcement and insolvency uncertainties. The framework emphasizes that custody supervision will be maintained through ongoing monitoring, reporting and enforcement tied to membership conditions, enabling CIRO to adapt to new risk signals without anchoring to a permanent rule set. This approach reflects a cautious, phased stance toward crypto regulation in Canada, balancing market integrity with the practicalities of industry growth.

CIRO’s framework is complemented by a broader context of Canadian crypto policy work. In the same regulatory arc, CIRO recently moved to exclude certain crypto funds from reduced margin eligibility, citing volatility, liquidity risks and regulatory uncertainty. The Bank of Canada has also signaled a measured path for crypto policy, noting that only high-quality fiat-backed stablecoins would be supported within its regulatory framework as part of a phased governance plan. These steps collectively illustrate a national strategy that seeks to limit systemic risk while enabling legitimate crypto activity to proceed under clearer guardrails. For readers tracking these developments, the linked reports provide contemporaneous context for the custody framework’s design and intent.

Canada’s broader crypto policy situation

The interim custody framework arrives as CIRO and other Canadian authorities pursue a structured, risk-based approach to crypto market oversight. The regulator’s actions align with a wider regulatory dialogue focused on market integrity, investor protection and cross-border considerations as the sector matures. The Bank of Canada’s recent stance on stablecoins underscores the country’s preference for quality, reserve-backed instruments within a careful regulatory perimeter, signaling ongoing deliberations about how digital assets fit within the conventional financial system. Overall, Canada appears to be building a layered framework that can adapt to evolving market dynamics while avoiding abrupt, blanket rules that could disrupt innovation.

Why it matters

For investors, the interim custody framework delivers clearer expectations about who holds crypto assets and under what controls. The tiered custody model provides a structured way to assess custodial risk across different providers, including requirements for capital, governance and cybersecurity. For dealers and trading platforms, the framework offers a concrete set of operational guardrails that can reduce legal and operational uncertainty as the Canadian crypto market expands. By tying custody obligations to membership conditions rather than core amendments to the rulebook, CIRO preserves flexibility to adjust safeguards as conditions change without waiting for a full rulemaking cycle.

Regulators gain a mechanism to monitor and enforce, with the ability to respond quickly to emerging risks. This agility is particularly important in a sector characterized by rapid innovation and evolving custody technologies. The framework’s emphasis on external cybersecurity reviews for higher-tier custodians signals a prudent approach to resilience, while maintaining a scalable path toward more robust standards should the market demand it. Taken together with other policy moves—such as the marginal adjustments to margin eligibility for crypto funds and the Bank of Canada’s cautious stance on stablecoins—the custody framework reinforces a deliberate, risk-aware Canadian regulatory tempo that seeks to protect investors without stifling progress.

For builders and market participants, the framework clarifies governance expectations for custodians, including how insurance, capital adequacy and technology risk controls will be evaluated. The emphasis on monitoring and enforcement rather than permanent rule changes could encourage experimentation and innovation within a clearly delimited risk envelope. In an ecosystem where flows of liquidity, custody solutions and compliant fintech services are increasingly interconnected, such regulatory scaffolding can help attract institutional participation while preserving a level playing field for domestic operators and global players operating in Canada.

What to watch next

• How CIRO expands or refines the custody framework as more dealers participate and custodial technologies evolve.
• The potential incorporation of framework elements into permanent rules or harmonized instruments as crypto markets mature.
• Regulatory responses to cross-border custodial arrangements and the ongoing assessment of capital thresholds for foreign custodians.
• Any updates to risk-monitoring metrics, reporting standards, or enforcement triggers tied to membership conditions.

Sources & verification

• CIRO notice: Digital Asset Custody Framework and membership-based supervisory expectations. https://www.ciro.ca/newsroom/publications/notice-ciros-digital-asset-custody-framework
• CIRO excludes crypto funds from reduced margin eligibility (Feb 6, 2025). https://cointelegraph.com/news/ciro-excludes-crypto-funds-reduced-margin-eligibility
• Bank of Canada statement on stablecoins within regulatory framework (Dec 17, 2025). https://cointelegraph.com/news/canada-reveals-standard-good-money-stablecoins

Market reaction and key details

The interim framework marks a notable step in Canada’s evolving crypto regulatory landscape. By codifying a tiered custody approach and anchoring supervision in membership terms, CIRO provides market participants with a clearer set of expectations while avoiding a premature, permanent rule overhaul. The emphasis on capital requirements and cybersecurity benchmarks underscores a risk-conscious stance that aims to shield investors without thwarting legitimate market activity. As with prior policy moves, the framework reflects Canada’s intent to balance innovation in digital assets with the safeguards expected in traditional financial markets.

What the custody framework changes

The most immediate effect is the creation of a formal risk framework for asset custody that dealers must follow when operating crypto trading venues. The tiered model introduces explicit caps on how much client crypto can be held by different types of custodians, with higher tiers carrying stronger due diligence and higher capital obligations. Internal custody remains a viable option but is subject to a strict 20% cap. The framework also links a custodian’s allowable share of assets to governance and technology controls, including external cybersecurity reviews for top-tier providers. In practice, this means that Canadian dealers will need to map their custody arrangements to a defined risk profile, while CIRO maintains ongoing oversight to ensure adherence. The result is a more predictable risk environment for participants and for Canadian retail and institutional investors seeking crypto exposure.

What to monitor during the transition

• Progress of permanent rulemaking and whether elements of the interim framework migrate into formal regulations.
• Adoption rates among dealers for CIRO-approved custodians and the effectiveness of internal custody controls.
• Shifts in cross-border custodial arrangements and any regulatory coordination with foreign jurisdictions.
• Updates to capital and cybersecurity requirements as market risks evolve.

This article was originally published as CIRO Unveils Interim Crypto Custody Framework in Canada on Crypto Breaking News – your trusted source for crypto news, Bitcoin news, and blockchain updates.