In February, the Canadian legislator adopted a new law on Retail Payment Activities (Retail Payment Activities Act) or RPAA, which outlined the boundaries of PSPs – Payment Service Providers. The legislator defined them as “natural or legal entities that perform payment functions as a service or business activity that is not incidental to another service or business activity.” The law has already entered into force on November 1, 2024. Our lawyers have analyzed this act and will familiarize you with the main points of the new regulation.
The Law outlines the signs of PSP and their further regulation. PSPs will now have to apply for registration to the Bank of Canada and receive confirmation of registration from them to proceed. If this is not done, the PSP’s actual activity will be recognized as illegal and an administrative fine will be imposed on the company after the end of the transition period
The law enters into force on November 1, 2024. The window for submitting applications for registration with the Central Bank of Canada opens from November 1 to November 15. After November 15, 2024, consideration of these applications will begin and will continue until the end of the transition period. The transition period will end in September 2025. At the same time, the results of the consideration of applications will be known and published on the website of the Central Bank. Previously, the results could be obtained only in case of refusal of registration.
To understand whether a company falls under the definition of PSP, the Central Bank of Canada has developed an online questionnaire. However, it is a rather dubious source, which you will be informed about already after passing the questionnaire.
So how do you know you need to apply for registration under the new law?
Under the RPAA, you are required to register with the Bank of Canada if you meet all of these criteria criteria:
1) The company is PSP
Payment service providers are “natural or legal entities that perform payment functions as a service or business activity that is not incidental to another service or business activity.”
The following five activities are considered chargeable functions under the RPAA. If the company’s activity falls under at least one of these 5 points, it is considered a PSP:
- providing or maintaining an account that, in connection with an electronic funds transfer (“EFT”), is maintained on behalf of one or more end users;
- holding funds on behalf of the end user until they are withdrawn by the end user or transferred to another natural or legal entity;
- initiating EFT at the end user’s request;
- authorizing an EFT or transmitting, receiving or facilitating an EFT instruction;
- provision of clearing or settlement services.
2) The company carries out retail payment activities.
3) The payment activity of the company falls under the geographical scope of the RPAA.
4) The company is not exempt from the RPAA.
The Central Bank of Canada has developed a detailed application guide. The application process is complicated and is done through a special PSP Connect service, which costs 2,500 Canadian dollars to register. This, in fact, is the fee for processing the application. To register as a payment service provider with the Bank of Canada under the Retail Payment Services Act (RPAA) between November 1 and November 15, 2024, you must complete the following steps:
- Create an account in the PSP Connect system.
- Preparing the necessary information and filling out the registration form in PSP Connect.
- Payment of the registration fee.
- Submission of registration application. During the registration period, you must provide basic company information, confirm compliance with risk management requirements, and describe how user funds will be protected. The Bank of Canada expects applicants to include information on an action plan for data security and incident risk management. In the registration application, you will need to fill in 18 points in accordance with the instructions of the Central Bank of Canada.
- Waiting for confirmation until September 2025.
After submitting an application for registration, the PSP company can continue to operate. If the company has not yet started its activities, then it must apply for registration with the Central Bank of Canada at least 60 calendar days before the start of operational activities. The Central Bank of Canada will monitor whether the company violates the requirements of the law and will publicly announce the violation on its website.
However, there are still many nuances that appear during application submission and consideration. Answers to all potential questions can be provided by the comments of the Bank of Canada, the rules of the RPAA, or our lawyers, who have conducted a comprehensive analysis and are ready to provide you with advice or accompany the application and communication with the Bank of Canada.
Either way, if you fall under the definition of PSP in Canada, you need to apply for registration by November 15th.
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The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.