Payments Canada responds to proposed Retail Payment Activities Act regulations

Payments Canada has submitted its response to the Department of Finance’s proposed regulations under the Retail Payment Activities Act (RPAA). The regulations are focused on overseeing payment service providers (PSPs).

Payments Canada’s submission seeks clarity on the scope of the definition of “payment service provider” and clear direction on which activities will be excluded from the RPAA registration requirements. Payments Canada believes guidance from the Bank of Canada regarding exclusions from their supervision is necessary to ensure accurate oversight of all entities performing retail payment functions defined in the RPAA. This guidance will aid in determining entities that may be eligible for Payments Canada membership should the Canadian Payments Act be amended to extend membership eligibility to RPAA-registered PSPs, credit union locals, and operators of financial market infrastructures. To gain Payments Canada membership, these entities would need to meet regulatory requirements set by Parliament in legislation and oversight requirements set by the government through regulation. This will ensure that competition can flourish and that financial innovation happens within — and not outside — the regulated financial system.

In addition, Payments Canada recommends the Bank of Canada’s supervisory framework consider the importance of disclosing revocations of PSP registrations in a timely manner. The submission suggests that the Bank of Canada notify Payments Canada of changes in registration status for those PSPs that may become future system participants once membership eligibility is expanded.

The release of the RPAA regulations is a critical step towards broadening membership in Payments Canada and access to Canada’s payment systems, which will drive competition and safe, regulated payment innovation for the benefit of Canadians. Ron Morrow, the Bank of Canada’s Executive Director of Supervision, spoke with Payments Canada about the importance of industry input on the RPAA, how PSPs can prepare and what it will mean for the people and businesses in Canada. 

Read the full submission below.

Written comments to the Department of Finance’s consultation on the proposed regulations under the Retail Payment Activities Act

General

Payments Canada welcomes the opportunity to comment on the Department of Finance’s proposed regulations under the Retail Payment Activities Act (RPAA) overseeing payment service providers (PSPs), published on February 11, 2023.

Payments Canada underpins the Canadian financial system and economy by owning and operating Canada’s payment clearing and settlement infrastructure, including associated systems, by-laws, rules and standards. In pursuing its legislative mandate, Payments Canada has a duty to promote the efficiency, safety and soundness of its clearing and settlement systems and take into account the interests of users. In pursuing its public purpose objectives, Payments Canada strives to enable a Canadian payment ecosystem that is resilient, inclusive and enables fair competition and innovation.

To meet the needs of Canadians, Payments Canada is modernizing Canada’s national payment clearing and settlement systems and the associated by-laws, rules and standards (payment Modernization) that enable financial transactions to occur efficiently and securely every day. A key expectation of payment Modernization is ensuring that Canada has objective and risk-based criteria for participation in Payments Canada’s payment clearing and settlement systems that permit fair and open access.

The critical oversight enabled by the RPAA through these regulations is a necessary step towards promoting public confidence in PSPs and facilitating safe access by future RPAA-registered PSPs to Payments Canada systems. The Canadian Payments Act (CP Act) must be amended to allow RPAA-registered PSPs to be eligible for membership and to participate in Payments Canada’s payment clearing and settlement systems. Payments Canada looks forward to Parliament amending the CP Act to include RPAA-registered PSPs as eligible members.

The implementation of a supervisory framework under the RPAA is an important part of enabling safe and trusted access to Payments Canada’s membership for PSPs. Access to Payments Canada’s systems will be further defined by associated regulations, by-laws, rules and policies to ensure potential future participants can meet various technical, operational and other risk-related requirements for system access.

As a next step, Payments Canada encourages the government to move forward and work with the ecosystem to define the important measures to manage market conduct in retail payment activities in the second phase of proposed regulations under the RPAA. To the extent appropriate under the CP Act, Payments Canada is similarly committed to working with its members, stakeholders and regulators to ensure that any risks associated with payment clearing and settlement system participation are effectively managed within Payments Canada's rules.

Description section response

Scope
Payments Canada wishes to acknowledge the importance of clarity on the scope of “payment service provider” and clear direction on which activities will be defined as ‘incidental to’ another service or business activity and therefore excluded from the RPAA registration requirement. Guidance from the Bank of Canada regarding exclusions from their supervision will ensure accurate registration and oversight of all entities performing retail payment functions defined in the RPAA and in turn, those who will be eligible for Payments Canada membership in the future.

Risk management and incident response
Payments Canada supports the proposed regulations on risk management and incident response and is pleased to see that these are aligned, in principle, with Payments Canada's enterprise risk management and operational risk management. If the government moves towards broader access to Payments Canada’s national payment clearing and settlement systems, the risk management and incident response requirements in the regulations will be key safeguards to facilitate risk-based access.

Safeguarding of funds
Payments Canada supports the funds safeguarding requirements outlined in the proposed regulations. These requirements represent a key safeguard to provide assurance of RPAA-registered PSP suitability for connecting to Payments Canada systems. The prescriptive details on how these requirements will be enforced should be clearly defined. Payments Canada looks forward to reviewing the Bank of Canada’s supervisory framework for guidance on how the appropriate use of the safeguarding approach will be validated, and to reviewing publication of any additional requirements to which PSPs may be subject.

Reporting
Ongoing annual reporting enabled through these regulations will allow the Bank of Canada to validate PSP compliance with the RPAA and will support Payments Canada’s objectives for open, risk-based system participation. If the CP Act is amended to include RPAA-registered PSPs as eligible members, it will be important for Payments Canada and the Bank of Canada to work together to ensure that PSPs are in good standing with the Bank to maintain eligibility for Payments Canada membership.

For any significant change made by RPAA-registered PSPs that impacts operations or funds safeguarding, Payments Canada recommends that the Bank of Canada consider an advance notice requirement greater than five days to appropriately assess any impact. Where these changes may have potential impacts for access to Payments Canada’s clearing and settlement systems, Payments Canada would like to be provided additional time for notice of these changes.

Payments Canada recognizes the importance of ensuring alignment with the Bank of Canada’s reporting obligations to inform risk-based participation. Payments Canada expects to work with the Bank of Canada to ensure alignment with proposed incident reporting obligations to address incidents that may impact continued access to our systems.

Payments Canada looks forward to further details provided by the Bank of Canada’s oversight regime regarding reporting requirements to ensure the sound management of systemic, operational and financial risks of RPAA-registered PSPs.

Registration
Payments Canada is supportive of a robust registration system for PSPs duly enforced by the Bank of Canada’s supervisory framework. A public registry is critical to ensuring end-user transparency and sustaining public confidence in the cohort of PSPs who are registered. Payments Canada is supportive of the proposed regulations establishing the Bank of Canada’s authority to refuse or revoke registration of PSPs who no longer fall within the scope of the RPAA.

Payments Canada recommends that the Bank of Canada’s supervisory framework take into consideration the importance of disclosing revocations of PSP registrations in a timely manner. We recommend that the Bank of Canada provide notice to Payments Canada of changes in registration status for those PSPs who become future system participants.

National security review
Payments Canada is confident that the Bank of Canada’s supervisory responsibilities and the Minister of Finance's authorities for national security, enabled by these regulations, will contribute to maintaining the safety and security of Canada’s payment systems.

Security of Canada’s national critical payment infrastructure is a priority for Payments Canada. The proposed regulations provide another layer of assurance that national security risks to critically important infrastructure are managed through the Minister’s authorities to issue directive orders, refuse or revoke registration.

Conclusion

The proposed regulations are an important first step toward enabling a modern payments supervisory regime through the RPAA that received Royal Assent in 2021. The combination of RPAA and future membership changes to the CP Act will enable broader access to Canada’s national payment clearing and settlement systems. Healthy competition in payments is a catalyst for innovation that will lead to improved payment products, services and experiences for Canadians and Canadian businesses and will support Canada’s competitiveness globally. These regulations introduce the necessary risk mitigants to enable the intended competition.

Payments Canada looks forward to further guidance issued by the Bank of Canada providing more transparency around its supervisory role and compliance expectations.