Publication date: December 12, 2023
The following fictional case scenarios illustrate what may be considered an affiliated entity, as defined in the Retail Payment Activities Act.
The examples provided are not a replacement for the Criteria for registering payment service providers supervisory policy, but rather they are meant to complement the policy. They should be read in conjunction with the policy.
Case scenario: Payment service provider directly controls a subsidiary
ABC Inc. is a payment service provider (PSP) that performs retail payment activities and is subject to the Retail Payment Activities Act (RPAA). ABC Inc. holds 51% of the voting securities of another corporation, SupportServices, which is sufficient to elect a majority of SupportServices’ directors. Under section 3 of the RPAA, one entity is affiliated with another if one of them is the subsidiary of the other. An entity is a subsidiary of another if that other entity controls it by holding, directly or indirectly, more than 50% of its voting securities, sufficient to elect a majority of its directors.
This means that SupportServices is a subsidiary and an affiliated entity of ABC Inc. When applying to register as a PSP with the Bank of Canada, ABC Inc. should identify SupportServices as an affiliated entity.
In addition, SupportServices may be required to register under the RPAA, even though ABC Inc. is already registered. SupportServices needs to assess whether it is a PSP that performs a retail payment activity and is not otherwise excluded from the application of the RPAA as set out in the Criteria for registering payment service providers. If this is the case, SupportServices must register with the Bank of Canada separately from ABC Inc. and should also identify ABC Inc. as an affiliated entity.
Case scenario: Payment service provider indirectly controls a subsidiary
ABC Inc. is a PSP that performs retail payment activities and is subject to the RPAA.
ABC Inc. holds 90% of the voting securities of another corporation, SupportServices, which is sufficient to elect a majority of SupportServices’ directors.
SupportServices in turns holds 55% of the voting securities of another corporation, Sendme, which is sufficient to elect a majority of Sendme’s directors.
In this scenario, both Sendme and SupportServices are affiliated entities of ABC Inc. because ABC Inc.:
- directly controls SupportServices
- indirectly controls Sendme, through SupportServices
When ABC Inc. applies for registration, it should identify SupportServices and Sendme as affiliated entities and provide the applicable information required under the RPAA.
In addition, if either SupportServices or Sendme is a PSP that performs retail payment activities and is not excluded from the application of the RPAA, as set out in the Criteria for registering payment service providers, then that entity must also register with the Bank of Canada and identify its affiliates, even though ABC Inc. is already registered.
Case scenario: ABC Inc. indirectly controls an entity
ABC Inc. is a PSP that performs retail payment activities and is subject to the RPAA. ABC Inc. holds 51% of the voting securities of other corporations—SupportServices and Mynetwork. These voting securities are sufficient to elect a majority of SupportServices’ and Mynetwork’s directors. According to section 3 of the RPAA, this means that ABC Inc. directly controls SupportServices and Mynetwork.
SupportServices and Mynetwork each hold 31% of the voting securities of another corporation, Payme. Individually, neither SupportServices nor Mynetwork holds enough voting securities to elect a majority of Payme’s directors. But together, they hold 62% of the voting securities of Payme, which is sufficient to elect a majority of Payme’s directors. According to section 3 of the RPAA, this means that ABC Inc. (which controls SupportServices and Mynetwork) also indirectly controls Payme.
Therefore, when ABC Inc. applies for registration with the Bank of Canada, it should identify SupportServices, Mynetwork and Payme as affiliated entities and provide the applicable information required under the RPAA.
In addition, if any of SupportServices, Mynetwork or Payme is a PSP that performs retail payment activities and is not excluded from the application of the RPAA as set out in the Criteria for registering payment service providers, then that entity must also register with the Bank of Canada and identify its affiliates, even though ABC Inc. is already registered.
Case scenario: Mynetwork needs to report its affiliations when registering
Mynetwork is a PSP that performs retail payment activities and is subject to the RPAA. ABC Inc. holds 51% of the voting securities of both SupportServices and Mynetwork, which is sufficient to elect the majority of SupportServices’ and Mynetwork’s directors.
Under section 3 of the RPAA, an entity is affiliated with another if:
- one of them is a subsidiary of the other
- both are subsidiaries of the same entity
- each of them is controlled by the same entity
In this example, ABC Inc. controls both SupportServices and Mynetwork, which means they are affiliated entities. Therefore, when applying for registration with the Bank of Canada, Mynetwork should identify ABC Inc. and SupportServices as affiliated entities.
If ABC Inc. or SupportServices is a PSP that performs retail payment activities and is not excluded from the application of the RPAA, as set out in the Criteria for registering payment service providers, then that entity must also register with the Bank of Canada and identify its affiliates, even though Mynetwork is already registered.
Case scenario: General partner controls limited partnership
Canada Co. is a PSP that performs retail payment activities and is subject to the RPAA. Canada Co. is a limited partnership, with the following limited partners: Alberta Co. and Quebec Co.
Canada Co.’s general partner is Ontario Co. As general partner, Ontario Co. controls the limited partnership Canada Co.
Under section 3 of the RPAA, one entity is affiliated with another entity if each of them is controlled by the same entity. In this situation:
- Canada Co. is affiliated with Ontario Co. because, as general partner, Ontario Co. controls Canada Co. (the limited partnership).
- Canada Co. is not affiliated with Alberta Co. or Quebec Co. because Ontario Co. does not control these limited partners.
When Canada Co. applies for registration, it should identify only Ontario Co. as an affiliated entity and provide the applicable information required under the RPAA.
If any of Alberta Co., Quebec Co. or Ontario Co. is a PSP that performs retail payment activities and not excluded from the application of the RPAA as set out in the Criteria for registering payment service providers, then it must also register with the Bank of Canada and identify its affiliates, even if Canada Co. is already registered.
Case scenario: Individual controls an entity
ABC Canada is a PSP that performs retail payment activities and is subject to the RPAA. ABC Canada is a limited partnership with the following limited partners: Toronto Co. and Ottawa Co.
Smith Family Trust holds 100% of the voting securities of ABC Canada, sufficient to elect a majority of ABC Canada’s directors.
John Smith holds an interest in Smith Family Trust that entitles him to receive 55% of the trust’s profits.
Under section 3 of the RPAA, an individual is affiliated with an entity if the individual controls the entity. An individual controls an entity other than a corporation or limited partnership if the individual, directly or indirectly, holds an interest in that entity that entitles them to receive more than 50% of that entity’s profits or more than 50% of its assets on dissolution.
In this example, ABC Canada is affiliated with:
- the Smith Family Trust, which controls ABC Canada
- John Smith, as the individual who controls the Smith Family Trust
When ABC Canada applies for registration, it should identify John Smith and the Smith Family Trust as affiliated entities and provide the applicable information required under the RPAA.
Disclaimer
The case scenarios are illustrative examples reflecting the Bank of Canada’s interpretation of certain requirements set out in the Retail Payment Activities Act (RPAA). All names, facts and descriptions in these scenarios are entirely fictitious and do not reflect any real or actual individuals or entities.
Additionally, they do not represent legal advice and should not be used as a replacement for seeking such advice if an individual or entity is unsure about whether they are required to register with the Bank of Canada as a payment service provider. The nature of the products and services offered by each individual or entity will vary, as will the circumstances around offering these products and services. Therefore, any individual or entity that may be subject to the RPAA should assess their own situation on a case-by-case basis according to their own facts and circumstances. Any entity or individual that may be subject to the RPAA is ultimately responsible for determining whether they are required to register with the Bank.
The examples provided are not a replacement for the Criteria for registering payment service providers supervisory policy, but rather they are meant to complement the policy. They should be read in conjunction with the policy.