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Fintechs Canada submits feedback on RPAA regulations

Fintechs Canada says the government needs to amend parts of its retail payments oversight framework if the governemnt is to deliver on its 2021 committment to “promote growth, innovation, and competition in digital payment services while making these payments services safer and more secure for consumers and businesses.”

After the culmination of much engagement with Fintechs Canada and others, the federal government committed to implementing a retail payments oversight framework in the 2021 federal budget. The Retail Payment Activities Act (RPAA), a piece of federal legislation that will apply to any company that is involved in payments, soon followed. After that came draft regulations that give more life to the RPAA.

The RPAA regulations came out for public comment earlier this month. These regulations have more detail about what payment service providers (PSPs) are going to have to do to comply with the new law:

  • End user funds safeguarding. PSPs will need hold end-user funds in a trust account or in a segregated account with insurance or a guarantee. PSPs will need systems, policies, processes, procedures and controls in place to ensure that end-users have access to their funds without delay, including when the PSP is involvent. The framework ensuring such must also be in writing, and must undergo independent review by a competent third party at least once every two years.
  • Risk-management framework and incident response. PSPs will need to have a comprehensive risk managment framework. Imagine something that defines your general obligations to your customers, such as the obligation to provide services without disruption, as well as the more particiular things you do to fulfil those obligations, such as testing. These requirements will be proportional to the risks the particular PSP poses to the ecosystem.
  • Reporting. PSPs will need to share a lot of information with the Bank of Canada, which is the regulator of PSPs. If there’s a signficant change in the way you do business as a PSP, you’ll need to notify the Bank of Canada in advance. If there’s any material incident, PSPs will need to notify the Bank of Canada (and any affected inviduals) of the incident and its impact, as well as any corrective action the PSP is going to take. If another entity is acquiring control of a PSP already registered with the Bank of Canada, the new entity will need to submit a new application to register as a PSP to the Bank of Canada.
  • National security review.  The Minister of Finance has the ability to launch a security review when a companies applies to register as a PSP, control of a registered PSP changes, or when there are other changes that warrant a national security review.
  • Fees. PSPs will need to pay a $2,500 registration fee and an annual assessment fee. The size of the annual assessment fee will be determined by two components. The first is a base amount, equally distributed across all PSPs. The second will be proportional to the PSPs share of overall payment activities.   Under the RPAA, the Bank of Canada has the power to recover its costs, as regulator of PSPs, through registration and annual assessment fees.
  • Penalties. The Bank of Canada can issue notice of violations (name and shame) or monetary penalities (up to $1 million for serious violations, and up to $10 million for very serious violations).

Using the government’s guiding principles of proportionality, necessity, consistency, and effectiveness, Fintechs Canada has identified areas in the draft regulations that are too prescriptive and onerous for fintech scale-ups, as well as areas that would benefit from more clarity. For Fintechs Canada’s full response, click here.

 

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