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Bank of Canada settlement account access policy for the Real-Time Rail

This policy establishes the requirements that the applicant must meet for the Bank of Canada to consider granting a settlement account for the planned Real-Time Rail.

Applicants for a Real-Time Rail (RTR) settlement account must:

  • qualify for Payments Canada membership in accordance with the Canadian Payments Act or be an existing member of Payments Canada
  • meet Payments Canada’s participation requirements for the system

The Bank reserves the right to request information in addition to what is outlined in this policy to assess applicants against the requirements described below. In all cases, the Bank uses its discretion to determine whether to provide a settlement account.

Applicants that have an existing settlement account for Lynx and/or the Automated Clearing Settlement System (ACSS) submit a streamlined application for an RTR settlement account. This is because the Bank has already evaluated these applicants, and they have demonstrated their ability to meet the same (or stricter) requirements.

The Bank will regularly confirm that existing holders of RTR settlement accounts continue to meet certain requirements. The Bank may require account holders to periodically provide information to assist with this confirmation.

The Bank regularly reviews—and may periodically update—these settlement account requirements.

Account type

Applicants must indicate whether they are applying for a settlement account that is unrestricted or restricted. Applicants of an unrestricted settlement account will face stricter requirements.

  • An unrestricted settlement account permits the account holder to settle on behalf of itself and act as a settlement agent for indirect participants in the RTR.
  • A restricted settlement account permits the account holder to settle only on its own behalf.

If a restricted settlement account holder decides to apply for an unrestricted account, it should inform the Bank so that the Bank can determine if it meets the stricter requirements. Direct participants must not begin settling on behalf of indirect participants until the Bank has informed them that they have become an unrestricted settlement account holder.

The Bank will regularly confirm that an unrestricted settlement account holder continues to meet the requirements.

Regulatory requirement

An applicant for a settlement account must be:

  • a financial institution that is federally or provincially regulated1
  • a payment service provider that is supervised by the Bank in accordance with the Retail Payment Activities Act (RPAA)2

Applicant information requirement

Applicants must provide basic due diligence information (e.g., applicant name and head office address) and information detailing the directors and beneficial ownership of the applicant.

Applicants will also be required to confirm that they have in place financial crimes risk management controls, such as ongoing monitoring of its business relationships. This supports the Bank’s responsibility to perform due diligence on those who will be settling payments using settlement accounts on the books of the Bank.

Business requirement

Applicants must clearly explain their business need for an RTR settlement account and confirm that the account will be used solely for settlement of RTR payment activity.

Financial health requirement

The Bank will require applicants to provide information to support a high-level assessment of their financial viability. This requirement helps to manage, but not eliminate, the risk that a participant could fail and therefore cause operational strain to the system.

Using its internal credit assessment framework, the Bank evaluates whether this requirement is met and continues to be met over time.

A questionnaire will be sent to the applicant to obtain information to support this assessment. The information requested varies depending on the type of institution.

  • For financial institutions: information allowing the Bank to assess whether the applicant is expected to continue to meet various financial regulatory requirements as set out by their prudential regulator (e.g., related to capitalization, funding and liquidity standards).
  • For payment service providers: annual financial statements that have been audited or reviewed by an independent auditor from the past three years (or a shorter period if the applicant is a new entity and records for the past three years do not exist) and the latest quarterly statements to allow the Bank to assess its status as a going concern.

Additional requirements for an unrestricted account

If a settlement account holder fails, its indirect participants would need to set up an alternative arrangement before they could resume their system activity. Given this additional operational consideration, stricter financial viability expectations will be applied to unrestricted settlement account holders, although the assessment will generally be based on the same information considered under the baseline requirement.

Payment capacity management requirement

The Bank expects settlement account holders to always have sufficient payment capacity to settle their RTR payments. The Bank will ask applicants to:

  • provide estimates of their peak and average expected daily payment flows
  • describe how they plan to maintain sufficient capacity to allow all their RTR payments to settle

Additional requirements for an unrestricted account

Negative consequences would result if an unrestricted settlement account holder ran out of payment capacity because both its payments and those of its indirect participants would be rejected until additional payment capacity was secured.

The Bank will therefore apply higher expectations for holders of unrestricted settlement accounts to demonstrate that they will be able to secure ample payment capacity for both their activity and that of the indirect participants for whom they settle.

The Bank will also prefer that holders of unrestricted settlement accounts will be larger than their indirect participant customers, so they can more easily obtain and replenish payment capacity to cover any needs.

Applicants for an unrestricted settlement account will be asked to provide information on the:

  • number and type of indirect participants they intend to settle on behalf of
  • expected peak and average daily flows of indirect participants they intend to settle on behalf of
  • sum of the expected net debit caps they intend to apply to their indirect participant customers
  • planned mechanisms to ensure sufficient payment capacity

Operational requirement

RTR settlement accounts will be funded and defunded by Lynx payments in the name of the applicable RTR direct participant.

A direct participant of RTR that is not a direct participant of Lynx will need to arrange for a direct participant of Lynx to:

  • fund its RTR settlement account
  • receive funds associated with a defunding request from the RTR direct participant

While applicants for an RTR settlement account are not required to have this arrangement in place before applying for a settlement account, the arrangement must be in place before the RTR settlement account becomes operational.

Legal requirement

Successful applicants must enter into the Bank’s agreement governing the RTR settlement account. This agreement sets out the rights and duties of both the Bank and the account holder with respect to maintaining and operating an RTR settlement account. Applicants must also formalize with the Bank any other agreements or documents that may be required periodically.

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  1. 1. Due to the different nature of their regulation and supervision, the Bank will consider granting access to securities dealers, money market mutual funds and insurance companies (including those regulated by the Office of the Superintendent of Financial Institutions) on a case-by-case basis based on expression of interest.[]
  2. 2. The Department of Finance Canada is working to expand Payments Canada’s membership eligibility criteria to include payment service providers subject to the Retail Payment Activities Act. Once eligible for Payments Canada membership, payment service providers will be eligible to apply for an RTR settlement account at the Bank.[]