.svg)
- Proposed payment service regulations aim to spur innovation.
- New framework consistent with EU and UK approaches.
- Regulations "critical step" to broaden payment system access, Payments Canada says.
The Canadian government has opened a consultation on a regulatory framework for payment service providers (PSPs), aligning with similar approaches taken in the EU and UK.
The Retail Payment Activities Regulations were published in the Canada Gazette on February 11.
The proposed regulations build on Canadian policymakers' recognition that PSPs, such as card networks, payment processors and digital wallets, are currently not supervised in the country with respect to their payment activities.
The lack of requirements and supervision increases risks to Canadian consumers in case of business insolvency or misuse of sensitive personal and financial information.
The proposed regulations were drafted in accordance with the country’s Retail Payments Activities Act 2021 and lay out a new retail payment supervisory regime for PSPs' retail payment activities.
These include standards for operational risk management, requirements to safeguard end-user funds, requirements regarding PSPs' registration with the Bank of Canada, reporting requirements and penalties for violating requirements.
“The act and the proposed regulations intend to promote the safety and integrity of the financial system while ensuring responsible innovation for the benefit of Canadians,” the Department of Finance Canada says in the document.
The regulations were designed to align with other jurisdictions that have already established payment service regimes, such as the EU, the UK and Australia to minimise the regulatory burden on PSPs.
“The proposed regulations would be consistent with the approach taken in these jurisdictions,” the document stresses.
Specifically, measures regarding requirements for registration, operational risk management frameworks, fund safeguarding, incident reporting and record keeping align closely with many of the requirements found in the EU and UK regimes.
Canadian PSPs will be required to implement and maintain a comprehensive risk management and incident response framework and safeguard consumer funds, by holding them in a trust account or in a segregated account with insurance or a guarantee in respect of the funds.
Providing payment services will also be subject to registration with the Bank of Canada, which has a $2,500 flat fee in addition to a separate annual assessment fee paid by PSPs.
They will also be required to file annual reports, incident reports and significant change reports with the central bank.
There would be some level of divergence from certain existing regimes though.
For instance, the proposed Canadian framework would be different from the Australian regime, which is voluntary and also from the UK to the extent that the payments market is overseen by a non-central bank regulator.
The government estimates that around 2,500 businesses would be impacted by the proposed regulations in the first year, where individual cost associated with the regulations would be around $8,700.
Altogether, the document estimates around $21.6m in total costs, which it says is equal to only 0.0018 percent of the $1.19trn total transaction value for debit, credit and online transfer transactions for 2021.
Supporting payment system access
Payments Canada welcomed the announcement calling the regulations a “critical step” towards broadening access to the country’s payment infrastructure.
“Bringing PSPs under the regulation of the Bank of Canada will support their ability to be granted Payments Canada membership and ultimately become payment system participants should they meet the requirements,” the payment system operator said.
It stressed though that these regulations alone are not enough to enable PSPs to participate directly in the payment system. Lawmakers must also amend the Canadian Payments Act to expand membership eligibility to include PSPs, credit union locals and systemically important Canadian Financial Market infrastructures.
Payments Canada has been actively pushing for expanding access to the central infrastructure in the last year.
In December, it was among the fourteen Canadian financial organisations that sent a letter to the finance minister asking for the legislative change.
Fintechs Canada, another signee of the letter, told VIXIO PaymentsCompliance that access to the central infrastructure will not only reduce costs, but will also result in a safer and more secure payment system since fintechs will need to meet Payments Canada's rules.
Stakeholders have now 45 days until March 28 to submit comments on the proposed PSP framework.
