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Canada’s New Retail Payment Regulations: Registration and Compliance

Payment Regulations | Nov 16, 2023

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The Retail Payment Activities Regulations (Regulations) are set to be published on November 22, 2023. 

BLG (Borden Ladner Gervais LLP) recently provided an insightful summary of the upcoming changes in Canada's payment industry titled "Canada’s Retail Payment Activities Framework to take off in November 2024".  Here are the key points:

Registration and Compliance

  • The Retail Payment Activities Regulations (Regulations) are set to be published on November 22, 2023. These regulations will bring Canada closer to regulating payment businesses, including paytechs and certain fintechs, under a formal retail payments supervisory framework overseen by the Bank of Canada.
  • Payment Service Providers (PSPs) must submit a registration application to the Bank between November 1 and November 16, 2024. This window is crucial for PSPs to submit their registration applications to the Bank of Canada.
  • By September 8, 2025, the compliance curtain rises, with the Bank notifying applicants of their registration status.The Bank will notify applicants of their registration status by September 8, 2025, which is also when compliance requirements begin.
  • During the transition period, the Bank may request additional information from applicants, which will be shared with FINTRAC and the federal Minister of Finance. Registration can be refused for reasons such as non-registration with FINTRAC, providing false information, or national security concerns directed by the Minister of Finance.

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  • Compliance of the new regulations specify requirements for risk management, safeguarding end-user funds, reporting, registration, and record-keeping. These include annual reviews of risk management frameworks and safeguarding-of-funds frameworks by the business's board of directors.
  • The finalized regulations have made some changes from the draft, such as reducing the frequency of independent reviews of the safeguarding-of-funds framework and limiting the application of requirements to third-party service providers.

Who is Caught in the Scope

It is estimated that approximately 2,500 PSPs will be impacted due to the Framework's broad scope.

The Framework applies to any retail PSP, regardless of their location (inside or outside Canada), when they perform one or more of the following payment functions in the context of an electronic funds transfer (EFT):

  • Providing and maintaining a payment account.
  • Initiating payments.
  • Authorizing and transmitting EFTs, or facilitating instructions related to an EFT.
  • Holding funds on behalf of end users.
  • Providing clearing or settlement services.

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Who is Excluded

To prevent regulatory and supervisory duplication, the Act empowers the Governor of the Bank to exempt certain entities or classes of entities from certain provisions of the Framework if they are already subject to substantially similar provisions in another Canadian federal or provincial law.

Specific Exclusions

  • Transactions already regulated (or exempted from regulation) under Canadian securities laws.
  • Transactions involving SWIFT.
  • Payment activities that are considered “incidental” to another service or business. The Bank has committed to providing further information on the meaning of incidental in the near future.

The Framework, therefore, includes a wide range of PSPs, particularly those involved in electronic funds transfers and related activities. However, it also provides for exemptions to avoid overlapping regulations and includes specific exclusions for certain types of transactions and activities. This approach aims to ensure comprehensive oversight of the payment services sector while avoiding unnecessary regulatory burdens on entities already governed by other laws.

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Closing Thought

The Framework isn't just about registration. It demands a strategic rethink of your risk management, fund safeguarding, reporting, and record-keeping practices. Annual reviews and board-level approvals are now part of the playbook.

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