OSFI 2027 rule lets banks net crypto hedges across exchanges

Canada’s banking regulator published its 2027 capital guideline on Sept. 10, allowing banks to treat qualifying same-asset crypto positions held across regulated exchanges as a single position for delta risk calculations when the trades have matching maturities. The guideline applies to Group 2a exposures that meet specific hedging-recognition criteria.

The hedging-recognition tests cover product structure, regulatory approval or qualifying central clearing, sufficient liquidity and an adequate data history. Positions must share the same time to maturity to qualify. Exposures on unregulated venues remain ineligible for cross-exchange recognition, and mismatched maturities prevent the treatment.

Key risk parameters for qualifying Group 2a positions remain unchanged. Delta and vega risk weights stay at 100%, and the within-bucket correlation parameter for capital calculations remains 94%. Banks cannot claim diversification benefits across different Group 2a crypto assets.

Positions that do not meet the tests are treated as Group 2b. For each Group 2b asset, a bank must deduct from Common Equity Tier 1 capital the larger of its absolute aggregate long or short position, unless the prescribed market-risk and credit valuation adjustment calculation produces a higher requirement.

OSFI also kept the aggregate gross exposure cap for Group 2 crypto assets at 5% of Net Tier 1 capital. The guideline allows an exclusion for certain client-clearing derivatives; if an institution exceeds the 5% limit, all of its Group 2 holdings are reclassified to Group 2b treatment and the stricter deduction rule applies.

The guideline follows a May consultation in which OSFI noted that banks commonly use market-neutral strategies for crypto and that prices for the same asset tend to move nearly identically across major regulated exchanges. The effective dates are Nov. 1, 2026 for institutions with an Oct. 31 fiscal year end and Jan. 1, 2027 for those with a Dec. 31 fiscal year end.

The guideline states the cross-exchange recognition is a targeted allowance for tightly matched hedges that meet all conditions and does not change the conservative treatment or exposure limits for other crypto holdings.