New PSP Regulation in Canada
Starting November 1, 2024, all Payment Service Providers (PSPs) in Canada must register with the Bank of Canada (BOC). This requirement is mandated by the new Retail Payment Activities (RPAA), which oversees retail payment activities carried out by PSPs located in Canada. It also applies to foreign PSPs offering services to Canadian users.
What is a psp?
A PSP is any individual or business that provides payment services as their main activity, not as a secondary part of another service. The RPAA aims to include as many service providers as possible within the fintech industry under this regulation.
Differences from Previous Regulations
Before this regulation, fintech service providers in Canada were mainly regulated as Money Service Businesses (MSBs) under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The new rules introduce a more European-style system where there are distinct categories for banks, other financial institutions, PSPs, and MSBs. PSPs will now be accountable to the BOC, similar to how PSPs in Europe report to national banks or financial authorities.
Registration Process and Overlap Issues
The registration process was prepared and issued by the Bank of Canada. According to the instruction, PSPs must register with the BOC between November 1 and November 15, 2024, using a web portal created by the BOC. Through this portal, PSPs can submit their registration details, pay the registration fee, and comply with the reporting obligations under the RPAA. The transitional period for the registration process shall also be applicable, during which applicants who did not submit their applications by November 15, 2024, must apply to the BOC 60 calendar days before beginning the planned activity subject to the RPAA. The transitional period shall last from November 16, 2024, until September 7, 2025. There is some overlap between the activities of MSBs and PSPs, making it unclear if a company needs to register with the BOC as a PSP, with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) as an MSB, or both. This could mean that some fintech companies may need to register twice and be overseen by FINTRAC and the BOC. MSBs that perform retail payment activities covered by the RPAA must also register with the BOC as PSPs.
National Security Review
Once a PSP meets the RPAA’s registration criteria, the BOC will share their application with FINTRAC and the Department of Finance Canada for a national security review.
Payment Functions Under RPAA
The RPAA defines the following as payment functions:
— Managing accounts related to electronic funds transfers (EFTs) for users;
— Holding funds for users until they withdraw or transfer them;
— Initiating EFTs at a user’s request;
— Authorizing or transmitting EFT instructions;
— Providing clearing or settlement services.
Risk Monitoring
PSPs are required to:
— Implement a framework to mitigate operational risks and handle incidents.
— Report any incidents that significantly impact end users, other PSPs, or certain clearing and settlement systems to the BOC.
— Protect end-user funds until they are withdrawn or transferred.
Enhanced Oversight and Enforcement
The BOC will monitor PSPs for compliance and use enforcement measures to address violations, including issuing notices of violation and imposing administrative monetary penalties.
Goals of the RPAA
The RPAA aims to bring PSPs under the regulatory framework of the BOC to:
— Increase transparency in their operations (Report keeping obligation);
— Prevent fraud and illegal activities in the financial market;
— Strengthen the Canadian fintech market to align with European legislation, which is seen as effective by Canadian lawmakers.
Summary
In essence, the RPAA will require PSPs to register with the BOC, ensuring better oversight and alignment with international best practices regarding fintech market regulation. Stay informed and compliant with these essential updates to streamline your operations and enhance your compliance standards. For more information, contact us via e-mail at services@bank-boutique.com.
