Electronic transfers

FinTechs Beware…Regulation Is Coming – Regulatory Update on the Canadian Retail Payments Activities Act

Recently, a senior official of the Bank of Canada (the “Bank”) announced in an interview that the regulation of Payment Service Providers (“PSPs”) under The Retail Payment Business Act (“RPAA”) would soon come into force and would radically change the landscape of retail payment services in Canada. Since the announcement, the Department of Finance and Treasury Board have been working together to ensure industry stakeholders are consulted before the Act comes into force.

This article explains why PSPs should be affected and how the Act will apply to their day-to-day operations. The Bank, the central regulator under the Act, expects 2,000 entities to fall under the new regime. The majority of entities expected to be affected are FinTech companies, of which around a fifth offer payment services. The Bank official reportedly said that the Bank’s task as overseer of retail PSPs “is to ensure that the trust that Canadians place in payment service providers on a daily basis is justified.” Before we get to the registration requirements, let’s dive deeper into the purposes of the RPAA.

The context of the law

What retail payment activities are regulated by the Act?

Although not yet in force, the RPAA is recent legislation and will govern the supervision of retail PSPs. Under the RPAA, the following retail payment activities are regulated if they are:

  • performed by a PSP that has an establishment in Canada, or
  • made by an end user in Canada by a PSP that does not have an establishment in Canada, but that operates retail payment entities or businesses that are located in Canada.

Payment service providers – Who is governed by the Law?

The Bank considers a PSP to be a company that offers one of the following services:

  • provide or maintain a payment account
    • natural or legal persons meet this definition if they store personal or financial information about end users to facilitate the completion of future transactions.
  • investment fund :
    • the Bank has not yet interpreted the definition of “holding fund”, but should soon publish a definition.
  • launch of an electronic funds transfer.
    • when a payer or payee sends the first instruction to start a transaction, either as a push or pull payment. Both forms of payment require the payer’s consent.
      • push payment: instruction sent by the payer to transfer funds to the beneficiary’s account.
      • pull payment: instruction sent by the beneficiary to withdraw funds from the payer’s account.
  • authorize, transmit, receive or facilitate instructions regarding an electronic funds transfer
    • transmits, receives or facilitates an instruction relating to an electronic funds transfer if it:
      • send payment instructions
      • receives payment instructions
      • provides the infrastructure to send or receive payment instructions
  • clearing or settlement
    • clearing: consists of transmitting, reconciling and, in some cases, confirming transactions before they are settled
    • settlement: releases payment obligations between two or more PSPs according to the terms of the transaction.

Similar to the structure of the law with respect to retail payment activities, the RPAA provides for the exclusion of the following types of entities (presumably because they are already subject to regulatory oversight):

  • banks and authorized foreign banks
  • credit unions, insurance companies, and trust and loan companies
  • provinces or their agents and mandataries
  • The Canadian Payments Association
  • a company to which the Insurance Companies Act Where Trust Loan Companies Act applies

Finally, the law also exempts:

  • designated systems: The Act does not apply in respect of a payment function that is performed in connection with an electronic funds transfer if the payment function is performed using a system designed under the Payment Clearing and Settlement Act (Canada).
  • agents and nominees: The Act does not apply if the agent or nominee engages in retail payment business as part of its business as agent or nominee, subject to certain conditions.

Updated registration conditions

Who must register under the Act?

In addition, a PSP must meet at least one of three criteria to be required to register under the Act:

  • must be a payment service provider
    • perform one or more payment functions as a service or business activity that is not incidental to another service or business activity. Ancillary retail payment activities have been clarified by the Retail Payments Advisory Committee as being performed “incidentally to another service or business activity”. Ancillary activities are often conducted by, but not limited to, the following entities: telecommunications companies or Internet service providers, online casinos, or law or accounting firms.
  • must be engaged in retail payment activity
    • perform payment functions related to an electronic transfer of funds made in Canadian or foreign currency (excluding crypto-currencies).
  • must respect a certain geographical scope
    • have a place of business in Canada
    • have a place of business outside of Canada, but engage in retail payment activity for an end user in Canada and retail payment activity direct to individuals or entities in Canada

It should be noted that the geographic scope criterion is comparable to what exists for money-services businesses under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

The above activities are stated in general terms and the RPAA specifies which retail payment activities are excluded from the application of the Act. The excluded activities can be summarized as follows:

  • ATM transactions
  • internal transactions between affiliated entities
  • Prepaid payment products: Exclusion for electronic transfers of funds made with an instrument issued by a merchant – or by an issuer who is not a payment service provider and has entered into an agreement with a group of merchants – and which allows the holder of the instrument to purchase goods or services only from the issuing group merchant. The most common example is a gift card from a specific merchant.
  • Eligible Financial Contracts/Securities Transactions: electronic transfers of funds made for the purpose of giving effect to a qualifying financial contract – essentially derivatives – or for the purpose of giving effect to a prescribed transaction relating to securities.

The Legislative Pipeline: When Can Entities Expect Regulatory Changes?

The implementation process

The Bank has announced a four-step implementation period before the law comes into force. The first stage took place on June 29, 2021 when the legislation was passed by Parliament. Since October 19e, 2022, the Bank is currently in the second phase of rolling out its legislation, which is the publication of regulations. The Ministry of Finance is responsible for drafting the regulations, while engaging stakeholders to ensure that the provisions and purpose of the Act receive broad public approval. In the second phase, the Department of Finance is required to submit the regulations to Treasury Board, after which they will be published for public consultation in Part I of the Canada Gazette. By publishing in the Canada Gazette, the Treasury Board hopes to reach a broad national audience and receive public comment, after which changes will be made if necessary. Thereafter, the final version of the regulations will be published in Part 2 of the Canada Gazette. To date, there is no evidence that any regulations have been drafted or submitted to Treasury Board.

The third and final stage of the implementation process includes the following:

  • 3) the Bank issues guidance on specific topics related to PGRFA to further clarify its oversight expectations.
  • 4) the entry into force of the law, where PSPs will be required to register with the Bank

How can stakeholders get involved?

PSPs and other stakeholders can become more involved in the RPAA consultations with the Bank in two ways. There is an email subscription service where stakeholders can subscribe. In addition to a subscription service, the Bank has set up a Retail Payments Advisory Committee. The committee is made up of industry leaders who provide the Bank with their industry expertise. CCPR members meet as needed to discuss issues related to retail payments.


In addition to registering a business under the PRAA, it is required to comply with enforcement mechanisms. In particular, the Bank specifies that each payment service provider must:

  • submit an annual report
  • inform the Bank before making a material change in the way it conducts retail payment business.
  • provide other regulatory information.

In addition to requiring compliance with the enforcement mechanisms of the PRAA, PSPs are also required to mitigate operational risk and safeguard end-user funds. For example, a payment service provider will need to show that it has a framework in place to manage risk and respond to incidents. In addition, to safeguard end-user funds, a payment service provider will need to segregate end-user funds from other funds used in its business operations.


Although the RPAA has not yet passed the second stage of implementation, the Bank’s advice to FinTechs and other PSPs is clear: regulation is on the way. It is expected that the RPAA will be finalized in coordination with a new payment system, Real-Time Rail (“RTR”). Work on the RTR is expected to be completed in 2023. The RTR is a new payment system established by Payments Canada allowing financial institutions and PSPs to develop improved ways for Canadians to pay for goods and services and transfer money. ‘silver. For further updates on RPAA and future updates on RTR developments, please subscribe to our banking and financial services mailing list.