Background

In December, we wrote about the finalized regulations enacted under the new federal Retail Payment Activities Act (RPAA). In this blog post, we noted that registration-related requirements under the RPAA will come into force on 1 November 2024, with registration expected to be completed by existing payment service providers (PSPs) by no later than 15 November 2024. Note that PSPs that register outside of this 15-day period will be subject to a 60-day delay in performing retail payment activities in Canada. 

On 2 October 2024, the Bank of Canada (BOC) updated its retail payment supervision policies and guidelines to provide additional guidance and case scenarios on the types of entities that are expected to register as a PSP under the new regulatory regime, including for acquirers, card program managers, cloud computing, holding funds, lending, marketplaces, and providers of services backed by cryptocurrencies. A full description of the case scenarios can be found here. 

What is the Criteria for Registering PSPs?

The BOC published a guideline as well as, a self-assessment tool to help individuals and entities determine if they are subject to the RPAA. In the Guidance, the BOC outlined a four-step test to determine if entities are required to register under theRPAA. Note that broadly, the RPAA applies to the retail payment activities of both PSPs with a Canadian place of business and PSPs outside of Canada that provide services to end users in Canada performing any of the five following payment functions as a service or business activity. Consider the four steps outlined below.

Step 1: Are you a payment service provider?

The RPAA defines a PSP as “an individual or entity that performs payment functions as a service or business activity that is not incidental to another service or business activity.” The RPAA defines five payment functions, which include: 

1. Provision or maintenance of an account that is held on behalf of one or more users or more, 
2. Holding funds on behalf of an end user,
3. Initiation of an electronic funds transfer at the request of an end user,
4. Authorization of an electronic funds transfer or transmission, reception or facilitation of an instruction in relation to an electronic funds transfer, or
5. Provision of clearing or settlement services.

Note that if you provide any of the above payment functions as a business that is not incidental to another service or business activity, you are likely required to register under the RPAA. However, if the payment functions are performed only because they are necessary to the non-payment service or business activity, they will be viewed as incidental to one or more of your non-payment services or business activities, and you will likely not be required to register as a PSP. 

Step 2: Do you perform retail payment activities? 

A retail payment activity is a payment function performed in relation to an electronic funds transfer (EFT). An EFT is “a placement, transfer or withdrawal of funds by electronic means that is initiated by or on behalf of an individual or entity.” Common examples of EFTs include debit, credit or prepaid card transactions made online or at point-of-sale, direct deposits, and electronic peer-to-peer payments. 

Step 3: Where is your place of business? 

The geographic scope requirements of the RPAA include any one of the following: 

1. You have a place of business in Canada, 
2. You do not have a place of business in Canada, but you perform retail payment activities for an end user in Canada and direct these activities at individuals or entities in Canada, or 
3. You do not have a place of business in Canada but plan to expand your business into Canada. 

Step 4: Are you or your activities excluded from the RPAA?

Finally, the RPAA provides a number of entity-based and activity-based exclusions from its application. Specifically, the following entities are excluded from the requirement to register as a PSP under the RPAA:

1. Banks and authorized foreign banks included in Schedules I, II or III of the Bank Act,
2. Insurance companies and fraternal benefit societies subject to the Insurance Companies Act and trust and loan companies subject to the Trust and Loan Companies Act,
3. Provincially regulated financial institutions (including credit unions, caisses populaires, insurance companies, trust companies and loan companies) that accept deposits transferable by order,
4. The BOC,
5. The Canadian Payments Association,
6. The Provincial Crown and agents or mandataries of the Provincial Crown that accept deposits transferable by order, and
7. The SWIFT messaging network. 

Additionally, activity-based exclusions include: 

1. Certain types of retail payment activities posing limited risk to end users, and 
2. Activities that are prudentially regulated or not considered to be retail payments.

Requirement to register 

If you or your entity have met or will meet each of the criteria of the test of the first three steps outlined above, and are not excluded from the entity-based or activities-based exclusions noted in Step 4, you are likely required to register as a PSP with the BOC. Further, if the registration requirement applies and you currently perform the payment functions, as outlined above, and wish to continue to perform these payment functions without interruption, you are required to register between 1 November, 2024 and 15 November, 2024. Registration outside of this 15-day period may result in you or your entity being subject to a potential delay of 60-days before commencing your retail payment activities. Continuing to perform retail payment activities without registration will be in contravention of Section 104 of the RPAA, which may lead to a notice of violation and a significant monetary penalty. 

Next steps

If you or your entity may be subject to the RPAA, you are required to be registered with the BOC by no later than 15 November 2024. If you have not yet prepared your submission materials for registration, please contact any of the authors immediately. We are ready to assist you in your registration as a PSP.