Retail payments supervision

Learn about the Bank of Canada’s role in supervising payment service providers, next steps and how you can get involved.

Overview

Under the Retail Payment Activities Act (RPAA), the Bank will be responsible for supervising payment service providers (PSPs). The aim is to build confidence in the safety and reliability of their services while protecting end users from specific risks.

The Department of Finance Canada is leading the development of regulations for the supervisory framework with support from the Bank. Proposed regulations to help clarify details of the RPAA have been published in Part I of the Canada Gazette.

Our supervisory framework

To fulfill our obligations under the RPAA, we developed a framework for retail payments supervision that explains how we will:

• supervise PSPs to determine if they comply with the RPAA
• promote compliance
• monitor and evaluate trends and issues in the payment system

What we won’t do

We will not supervise financial businesses or payment systems that are prudentially regulated by federal or provincial laws, such as commercial banks and credit unions.

We will not offer broader consumer protection, such as:

• dispute resolution between a PSP and its end users
• concerns about fees charged by PSPs
• privacy complaints

Our role is not geared toward preventing PSPs from failure or insolvency.

Unlike a licensing program, this supervisory framework will not enable us to authorize firms to operate as a particular type of entity.

Canada’s Minister of Finance will be responsible for conducting a national security review of PSPs.

About payment service providers

According to the RPAA, PSPs include a variety of entities that perform electronic payment functions, such as payment processors, digital wallets, money transfer services and other payment technology companies that offer retail payment services.

Payment functions

We are interpreting the payment functions outlined in the RPAA to determine which entities or individuals will be considered a PSP.

Providing or maintaining a payment account

Individuals or entities:

• provide or maintain a payment account if they store personal or financial information about end users to make it easier to carry out future transactions
• do not provide or maintain a payment account if they store personal or financial information:
• for purposes other than making an electronic funds transfer (EFT)
• for making it easier to conduct a one-time transaction but not for future EFTs

Holding funds

Information about how we interpret this function will be released when it becomes available.

Initiating an electronic funds transfer

An EFT is initiated when a payer or a payee sends the first instruction to start a transaction, either as a push or pull payment.

• A push payment is when the payer sends an instruction to move funds to the payee’s account. This type of payment is commonly used for a one-time online purchase or a transfer of funds that occurs only once.
• A pull payment is when the payee sends an instruction sent to move funds from the payer’s account. This type of payment is commonly used for recurring bills and subscriptions.

Both push and pull payments require the payer’s consent.

Authorizing or transmitting instructions about an electronic funds transfer

A PSP authorizes an EFT if it:

• requests that the end user confirm whether they sent or received an EFT
• confirms that the end user has enough funds to make the requested EFT
• has an arrangement with its end user to send or receive an EFT without an action taken by the end user (i.e., pre-authorized)
• debits or credits an end user’s account as directed by the payment instruction associated with an EFT

A PSP transmits, receives or facilitates an instruction about an EFT if it:

• sends payment instructions
• receives payment instructions
• provides the infrastructure that enables payment instructions to be sent or received

Clearing or settling

The clearing process involves transmitting, reconciling and, in some cases, confirming transactions before they are settled. It includes:

• preparing and calculating final balances for settlement
• exchanging the necessary information

The settlement process releases the payment obligations between two or more PSPs according to the terms of the transaction. The transaction is considered complete once settlement takes place.

Money service businesses

Individuals or entities registered with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) as a money service business must register with us as a PSP if they perform retail payment activities covered by the RPAA.

Our role is to supervise registered PSPs in relation to operational and financial risks to ensure the safety and the reliability of PSPs.

FINTRAC will continue to regulate money service businesses in relation to:

• anti-money laundering
• anti-terrorist financing

About cost recovery

Under the RPAA, we are required to recover the costs of supervising PSPs through two types of fees.

Registration fee

As part of their application, all applicants will need to pay a fee when registering with us. We will only review an application once we have received this fee.

Annual assessment fee

Registered PSPs will need to pay an annual assessment fee.

This fee will recover the cost of the Bank’s supervisory activities under the RPAA that have not been recovered through the registration fee, using a set formula.

The cost of implementing the retail payments supervision (RPS) mandate depends on several factors, including the number of PSPs in scope of the RPAA and the efforts that will be required to assess whether PSPs are adequately meeting their regulatory requirements.

Key milestones

Here is what to expect as we prepare for the implementation of the RPAA.