The Retail Payments Activities Act was enacted by the Parliament of Canada and passed into law, on June 29, 2021, with regulations published on November 22, 2023. On December 12, 2023, the Bank of Canada published guidance entitled Criteria for registering payment service providers (Guidance).
Under the Retail Payments Activities Act, the Bank of Canada is responsible for the supervision of retail payment service providers (payment service providers) for compliance with the Retail Payments Activities Act. The Guidance is designed to assist potential payment service providers in assessing whether an activity falls under the Retail Payments Activities Act and determining whether they should submit an application for registration.
The Retail Payments Activities Act’s regulatory framework directs the activities of payment service providers through the Bank of Canada. The Bank of Canada supervises payment service providers such as card networks, payment processors and digital wallets that perform electronic payment functions. Under the Retail Payments Activities Act, payment service providers now have to register with the Bank of Canada to operate in Canada. Regulations under the Retail Payments Activities Act require payment service providers to have measures in place to safeguard end-users’ funds and mitigate operational risks that could disrupt or compromise their services. Regulations under the Retail Payments Activities Act would also include national security safeguards.
Payment service providers must register with the Bank of Canada before it performs any retail payment activities if all four of the following conditions are met:
1. The payment service providers perform a payment function rThe payment service provider performs one or more of the five payment functions identified in the Retail Payments Activities Act as a service that is not incidental to any non-payment service or business activity. The Act defines five payment functions:
- provision or maintenance of an account that is held on behalf of one end user or more;
- holding funds on behalf of an end user;
- initiation of an electronic funds transfer at the request of an end user;
- authorization of an electronic funds transfer or transmission, reception or facilitation of an instruction in relation to an electronic funds transfer; and
- provision of clearing or settlement services.
2. The payment service providers perform a payment function related to an electronic funds transfer (EFT) that is made in a fiat currency or a prescribed unit.
3. The payment service providers fall under the geographic scope of the Retail Payments Activities Act which requires:
- a place of business in Canada, or,
- the provision of direct services at, and perform services for, individuals or entities in Canada.
4. The Retail Payments Activities Act excludes certain individuals or entities and activities from its application, including but not limited to:
- banks, authorized foreign banks, and provincially-regulated trust companies;
- incidental activities, securities related transactions, and internal and closed loop transactions;
- transactions related to securities performed by individuals or entities that are regulated or exempted from regulation under securities legislation; and
- holding funds.
The Bank of Canada Guidance is available for download from the website of the Bank of Canada.
The Retail Payments Activities Act is available for download from the website of the Government of Canada.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
