To achieve the objective of “supporting an innovative and well-functioning Canadian payments system”, which it outlined in the 2019 budget, 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.
Regarding a review of the Canadian Payments Act, a report from the federal government said the framework will ensure that the retail payment ecosystem, (consisting of legacy payments companies and FinTechs), remains reliable and safe – whilst importantly supporting innovation and competition.
The report said: “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 proposed oversight framework would serve to close this gap by establishing a number of requirements”.
Talking to the Financial Post, a spokesperson for the Department of Finance said 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.
Money exchange oversight organization, Payments Canada, said 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”.
Gerry Gaetz, president and CEO of Payments Canada, said: “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.
“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 payments ecosystem.
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.