In the 2019 federal budget, the government has proposed new legislation to help implement a new retail payments oversight framework that will enable retail payment services providers (PSPs) to continue to offer innovation in services, while remaining reliable and safe. The global payments landscape is rapidly changing as innovative technologies are challenging traditional payments systems. Technology companies have innovated modern payment methods, such as Apple Pay, to address consumer demand for convenient and flexible payment solutions. In order to keep pace, Canada must foster innovation in payments systems while continuing to ensure that new entrants and payment solutions are regulated and safe for consumers. This new oversight framework ultimately serves to ensure that the interests of consumers are properly safeguarded. The government’s approach complements certain on-going consultations it is having on open banking, as discussed in our earlier post.
The new oversight framework would require PSPs to establish sound operational risk management practices and to protect users’ funds against losses. The Bank of Canada is expected to oversee the PSPs’ compliance with operational and financial requirements and maintain a public registry of regulated PSPs.
The proposed oversight framework follows the Department of Finance consultation paper released in 2017 that highlighted the need for a new oversight framework to ensure that Canadian retail payments ecosystem evolves and promotes innovation while remaining reliable and safe. Some retail PSPs are currently not subject to oversight, which can lead to issues related to protection for the end-user, as well as risk and efficiency issues. The proposed oversight framework would help close this regulatory gap.
With support from Payments Canada, the new oversight framework has the necessary momentum to see the light of day. PSPs should keep a close watch on a new regulatory regime for the payments services industry.