On July 7, 2017, the Department of Finance of the Government of Canada (the Department) released a consultation paper (Paper) regarding a proposed new oversight framework for retail payments (New Framework).  The Paper states that retail payment service providers (PSPs) other than regulated financial services providers such as banks and payment card networks are not currently subject to a comprehensive oversight framework.   According to the Paper, a New Framework is needed to ensure that as retail payments continue to evolve, an appropriate balance is maintained between the Government’s three policy objectives of (1) safety and soundness; (2) efficiency; and (3) user interests.

Proposed measures

The Government would introduce measures to mitigate risks and support consumers and businesses’ confidence in payment services.  Proposed measures would apply to PSPs that are engaged in any of the following core functions in the context of electronic funds transfers, subject to certain exceptions: (1) provision and maintenance of a payment account; (2) payment initiation; (3) authorization and transmission; (4) holding of funds; and (5) clearing and settlement. The Paper does not specify whether measures would be introduced via new legislation or “voluntary vehicles”.  This scope of coverage of the proposed measures is referred to in the Paper as the “perimeter”, and appears to include fintech companies that operate in the payments space.

The proposed measures would aim to address the following topics:

  • safeguarding end-user funds
  • operational standards
  • disclosures to end-users
  • dispute resolution
  • liability for unauthorized transactions
  • registration of PSPs with a designated federal retail payments regulator; and
  • protection of personal information.

Request for public comment

The Department requests comments on the Paper from the public and includes specific questions for which feedback is sought:

  • Is the proposed perimeter appropriate to mitigate risks in retail payments?
  • Is the proposed requirement to place end-user funds in trust accounts combined with detailed record keeping, annual filings and the regulator’s compliance tools (described in Annex C) appropriate?
  • Should any exemptions from the trust account requirements exist (e.g., where funds held are below a specified per-user threshold (e.g., $100) or where funds are only held for a short period of time)? Would additional measures be desirable?
  • Are the proposed measures to address operational risks appropriate?
  • Are the proposed essential elements for a complaint handling process appropriate?
  • Are the proposed measures regarding liability in case of errors and unauthorized transactions appropriate?
  • Is the level of information that would be required at registration appropriate?
  • Are the proposed criteria for registration adequate?
  • Stakeholders are invited to provide views on approaches for tiering of specific proposed measures.
  • Would the framework sufficiently promote innovation and competition?

Comments on the Paper are requested by October 6, 2017.  The Paper indicates that based on the results of the consultation, the Government will propose legislation to implement the New Framework.