On April 13, the federal government made two important announcements relating to the regulation of payments and payments systems. First, an update was released to the Code of Conduct for the Credit and Debit Card Industry in Canada (Code of Conduct). In addition, the Government announced the launch of a consultation on the oversight of “national retail payment systems”. Further details of the announcements are provided below.

Code of Conduct

The Code of Conduct applies to payment card networks and their participants, which include credit card issuers and acquirers and their downstream participants.

Among other changes, merchant acquirers will be required to provide increased disclosures to merchants and to establish a complaints handling process. Merchants will have the ability to cancel merchant acquirer contracts in the event that the acquirer has not passed through the full savings from an interchange reduction within 90 days. The changes also attempt to adapt various principles of the original Code of Conduct (released in 2010) to payments made using mobile wallets and mobile applications.

A summary of the changes is available in a release published today on the website of the Department of Finance. The release states that credit and debit card industry participants will have 30 days from today’s date to review and adopt the updated Code of Conduct. Some of the updates to the Code of Conduct will take effect immediately upon adoption by the payment card networks. Participants will have more time to adopt the updated disclosure requirements, which will result in significant changes to merchant processing agreements.

For a link to the announcement, click here.

National Payment Systems

The government also announced the launch of a consultation on the oversight of the national payment systems. Under the current regulatory framework, the government may designate a payment system for oversight if it presents either systemic risk or payment systems risk. With respect to the settlement of payments, the Large Value Transfer System operated by the Canadian Payments Association (CPA) is an example of a system that is considered to present systemic risk and the Automated Clearing and Settlement System, also operated by the CPA, is potentially being considered as a system that poses payment systems risk (now being referred to in the consultation paper as prominent payment systems risk). In addition to these systemically important and prominent payment systems, the consultation paper refers to a third type of payment system, a national payment system. These are systems that, while not engaging either systemic risk or payment system risk, potentially pose, according to the paper, harm to their users either from system failures or questionable market conduct.

Interestingly, while the consultation paper discusses the risks that might arise from a national payment system, the first area where the paper requests comment is with regards to what should be included as a national payment system. In addition, the paper is seeking comments on:

  • The types of risks posed by “national retail payment systems”
  • The measures should be considered to address these risks
  • The right balance between the need to mitigate risks with the objectives of promoting innovation and competition in the payments sector
  • Whether the CPA rules that protect customers should be extended to “on-us” payments within the same institution
  • Whether oversight should be based on a functional approach, where risks are assessed by payment activity and treated similarly regardless of the provider
  • The types of payment functions or instruments that should be brought within the scope of oversight
  • The key priority areas in developing oversight for retail payment systems
  • The form of arrangement(s) that should be used to implement oversight (e.g., legislation, code of conduct)

The comment period on the consultation ends on June 5, 2015. For a copy of the announcement, click here.