Budget 2019 dropped a week ago, and one of the objectives outlined in the document included “supporting an innovative and well-functioning Canadian payments system”.
To achieve this, the Canadian government plans to implement a new retail payments oversight framework that will require payment service providers (PSPs) to establish operational risk management practices while protecting users’ funds against losses.
“Retail payments oversight framework acknowledges the shifting payments landscape.”
A report from the federal government on a review of the Canadian Payments Act, said that the framework will ensure that the retail payments ecosystem, (consisting of legacy payments companies and FinTechs), remains reliable and safe – while also supporting innovation and competition.
“Certain retail PSPs are currently not subject to oversight, which can raise issues related to risk, efficiency, and protection for PSPs and end-users,” the report said. “The proposed oversight framework would serve to close this gap by establishing a number of requirements.”
A spokesperson for the Department of Finance told the Financial Post that the framework would apply to firms providing retail payment activities, such as holding onto funds for their users or transmitting payment messages. This would include payment card networks and FinTech companies offering such services.
According to Payments Canada, an organization responsible for the processes and rules surrounding the exchange of money in Canada, the framework will “level the playing field” by bringing newer companies under regulation, and “act as the foundation for broader, risk-based access to Canada’s retail payments ecosystem.”
“The proposed retail payments oversight framework acknowledges the shifting payments landscape and is an important step towards ensuring safety and soundness while facilitating innovation in the space,” said Gerry Gaetz, president and CEO of Payments Canada. “The framework, and its oversight by the Bank of Canada, is a welcome addition to Canada’s payments systems governance.”
Payments Canada also said the framework would also support more open and risk-based access to the payment ecosystem.
The requirements outlined include safeguarding end-user funds, implementing operational risk-management standards, minimum disclosure requirements, dispute resolution mechanisms, and liability rules. The Bank of Canada would oversee that PSPs comply with these regulations, and keep a public registry of regulated PSPs.
The government had first sent a call out for comments and consultation, in regards to a new retail payments oversight framework, back in 2017. The new framework will build on the 2015 consultation paper Balancing Oversight and Innovation in the Ways we Pay, which aimed to address the lack of regulation for non-bank retail PSPs.
Featured image via Pixabay.