Morrow expects the Bank will begin registering payments service providers in 2024 
Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
BoC: New Retail Payment Regulations Coming –> Fintechs Need To Get Ready…
Betakit | | Aug 17, 2022
Morrow expects the Bank will begin registering payments service providers in 2024
- Of the nearly 700 FinTech companies in Canada, roughly one-fifth offer payment services.
- All money service businesses in Canada are required to comply with anti-money and anti-terrorist financing regulations, as well as privacy and consumer protection laws. However, FinTech firms handling low-value, electronic payments are not overseen by a dedicated central regulator in Canada in relation to how they manage risks, respond to incidents, and protect user funds. But this reality is starting to change.
- The Bank of Canada will soon regulate entities facilitating retail payment functions in Canada, including FinTech firms of various sizes, domestic and foreign.
See: Bank of Canada: The Latest on Retail Payments Supervision and Survey
New retail payment regulations
Ron Morrow, executive director of retail payments supervision at the Bank of Canada:
They need to know that it’s coming, and they need to be ready for this regime when it comes into force.
- The Bank’s role as retail payments supervisor evolved out of the federal government’s 2021 budget, which first proposed to create an oversight framework for payments service providers (PSPs), meaning companies that perform electronic retail payment functions in Canada that are not already governed by other agencies.
- In June 2021, the federal government passed the Retail Payments Activities Act (RPAA), which gave the Bank of Canada the role of regulator in this area.
- Morrow said the Bank of Canada expects 2,000 entities will fall under the new regime. Banks and credit unions, which provincial and federal agencies already regulate, are excluded from the framework.
- The Bank’s current budgeted costs for the regime range from $25 million to $30 million per year, mostly for staff-related expenses, as the Bank plans to increase its currently 35-person team to 110. While these costs are currently being paid for by the federal government, the Bank expects these costs to be recouped by PSPs once the retail payment supervision program is up and running in future years.
Retail Time Rail (RTR)
- Another benefit of the supervisory framework for tech firms relates to Canada’s real-time rail (RTR) system, which is meant to modernize the country’s core payments infrastructure. The system, when completed, will allow for payments to be sent and received within seconds, a much-anticipated capability for FinTech startups. Morrow noted as the new system comes into place, PSPs that the Bank oversees will be “eligible to submit an application” to join the RTR directly.
See: How the Big Five Banks Control Canada’s Payment Systems
- While potential access to the RTR will be a big incentive for tech firms, the Canadian FinTech ecosystem has grown frustrated with the long-drawn-out development of the system. Originally scheduled for launch in 2022, Payments Canada, overseeing the RTR, pushed the launch time back to mid-2023.
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