The Bank of Canada sparks innovation, competition, and consumer protection with transformative payment sector changes.

The Bank of Canada is making significant changes to the way it oversees and controls the payment sector. The Canadian payments ecosystem is expected to experience innovation, competition, and increased consumer protection as a result of these reforms.

At the Central 1 Momentum Summit, Ron Morrow, the Bank of Canada’s supervisor of retail payment service providers (PSPs) and financial market infrastructures, recently gave a speech detailing upcoming reforms.

He started out by expressing gratitude to everyone in attendance and highlighting the significance of payments in day-to-day life. Looking back, Morrow talked on how the financial crisis of 2008–2009 and the loss of Herstatt Bank in 1974 affected the financial landscape today. Morrow explained how the Bank of Canada plays a crucial role in making sure that everything financial is compliant by applying the lessons acquired to the present.

In addition to the significant payment systems that are already subject to regulations, thousands of other businesses currently provide payment services. While some of these payment service providers (PSPs) are well-known and big, others are considerably smaller. Many of these PSPs have not been under oversight until recently, other than having to abide by anti-money laundering laws. That’s going to change shortly.

“To address the new realities of today, the Bank is broadening its traditional monitoring function. I’ll discuss about these adjustments this afternoon. More precisely, I’ll examine some of the finer points of the soon-to-be implemented new retail payments system.

PSPs’ vital function in our society

Morrow highlights the function of the Canadian central bank in maintaining trust in the financial environment with a great Spiderman comparison.

It’s important to note that everything in our retail payments ecosystem is operating smoothly right now. The fact that most Canadians take PSPs for granted while making purchases or transferring money may be the best indication of their trustworthiness.

“The new regime I’m talking about today has the responsibility of ensuring that this trust is well-founded, assuring the public that operational risks are being adequately managed and that their money is secure.”

The Retail Payment Activities Act was passed by the Canadian government in 2021 to make sure PSPs complied with risk management guidelines and adequately protected any money they handled on behalf of end customers. Morrow does point out that the government had to change the Canadian Payments Act in response to the PSP industry’s exponential growth. PSPs will then be able to take part in a national payments infrastructure and the soon-to-be real-time rail (RTR) as a result.

Taking lessons from the past

Morrow also discusses how the Bank of Canada adopted ideas from other countries, such as the UK, Singapore, and the European Union, into the new Canadian system.

In general, we didn’t see the need to develop a special, made-in-Canada strategy. Given that numerous PSPs function in multiple jurisdictions worldwide, it is advantageous to coordinate with alternative supervisory frameworks wherever feasible. Similar to other parties, we aimed to achieve an optimal equilibrium between safeguarding end user interests and optimizing efficiency and smoothness in terms of PSP burden.


Morrow outlined three key factors as he looked ahead at what the new regime will require of PSPs.

The first is that the Act will take effect in less than a year and that organizations classified as PSPs will need to register with the Bank of Canada.

We’ll start by requesting the following fundamental information:

  • Who are they?
  • the character of their enterprise
  • the amount and worth of the money they handle

However, signing up is only the first step. The other prerequisites begin to apply in 2025. We will start requiring PSPs to manage operational risk in accordance with minimal requirements. Additionally, PSPs will have to show what steps they are taking to protect end-user money.

PSPs will have to take several steps in order to comply with these criteria. I won’t go into all of those specifics now, but in general, PSPs will need to:

  • Recognize and control hazards
  • react to occurrences
  • Review their plans on a regular basis

Additionally, PSPs holding end-user funds will have to demonstrate to the new regime that they have safeguards in place to protect those monies until they are transferred or withdrawn. Accordingly, PSPs are required to maintain end-user funds apart from their operational assets and to either hold them in trust or to have end-user money covered by insurance or guarantees.

“To ensure that end users have timely and dependable access to their funds and to safeguard end users in the event that a PSP files for bankruptcy are the two goals here.”

He went on to elaborate in his address on what constituted a PSP, the procedures that participants would need to follow in order to participate, and the specifics of how the new regime would be implemented.

Don’t let Uncle Ben down

“We are doing everything we can to make our expectations known in the remaining time before the act comes into force,” stated Morrow as he wrapped up his remarks. We intend to avoid the need for enforcement actions down the road by continuing to interact with the sector and by providing information frequently and early.

“This is the one thing you should take away from this speech: change is on the way. Without a doubt, PSPs doing business in Canada should begin getting ready right now.

Keep in mind that enormous power entails immense responsibility. Let’s not let Uncle Ben down.

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