On February 4, 2025, the Canadian Payments Association (Payments Canada) announced the commencement of a 30-day public consultation period on proposed amendments to its bylaws and rules as a result of certain amendments to the Canadian Payments Act (Canada) (the CP Act Amendments). The CP Act Amendments, enacted under Bill C-59 An Act to implement certain provisions of the fall economic statement, which was tabled in November 2023 and received royal assent on June 20, 2024, include expanding eligibility for membership in Payments Canada to:
- fintechs, paytechs and other payments businesses registered as payment service providers (PSPs) with the Bank of Canada (the Bank) pursuant to the Retail Payment Activities Act (RPAA);
- credit union locals that are a member of a central or cooperative credit association; and
- clearing houses of clearing and settlement systems designated as such pursuant to the Payment Clearing and Settlement Act (Canada).
The CP Act Amendments are not yet in effect and will come into force on the order of the Governor in Council.
Brief Background
Payments Canada plays a crucial role in the stability of Canada's financial system because it owns and operates the country's payment clearing and settlement infrastructure. In order to access Canada's payment infrastructure, membership in Payments Canada is required. While banks are mandatory members, currently, businesses that can choose to become members are limited to federal or provincial financial institutions, such as credit union centrals, trust and loan companies, and other deposit takers.
Back in May 2018, the federal government lead a consultation seeking views on the merits of allowing future registered PSPs access to Payments Canada's systems; the suggestion then was for PSPs to be part of an "associate member class" and be subject to a set of rules different from core members. This consultation laid the groundwork for the CP Act Amendments.
The Proposals
In connection with the CP Act Amendments, Payments Canada is seeking input on a number of policy changes to its bylaws and rules during the consultation period, including:
- adding a requirement that PSPs must provide evidence of registration under the RPAA to become a member of Payments Canada;
- allowing PSPs that are registered under the RPAA but choose not to be members of Payments Canada to remain eligible to sit on the Stakeholder Advisory Council (SAC), a broad group of stakeholders with standing to formally provide input on payments-related matters to Payments Canada (at present, entities that are eligible to become members of Payments Canada but have not done so, are not permitted to be members of SAC);
- changing certain access requirements to Payments Canada's systems to be more focused on systemic and settlement risk presented by participants rather than entity-based restrictions, potentially opening the door to a broader base of participants provided appropriate risk mitigants are in place;
- introducing an expedited process to its compliance procedures for straightforward or uncontested contraventions made by participants of Payments Canada rules to allow for more efficient resolution; and
- increasing the maximum fine for contraventions from $250,000 to $1,000,000 per contravention, as this amount has not been amended since 2003
(collectively, the Proposals).
Payments Canada is accepting comments on the Proposals until March 6, 2025, by email.
While the CP Act Amendments and the Proposals are critical steps towards allowing businesses that have historically not been able to directly participate in Canada's core payments system to do so, membership is only one aspect of direct access to Canada's payment rails. In addition to Payments Canada membership, participants must, among other things, meet the stringent requirements of the Bank to obtain a settlement account, as well as the technical and operational requirements of the applicable payment system.
Real-time Rail
Payments Canada's real-time rail (RTR), which is intended to enable, among other things, real-time settlement of lower value transactions, including Interac e-Transfer transactions, will likely be the most desirable with the least barrier to entry for businesses like PSPs and credit union locals. If done right, RTR, together with a regulated open-banking framework, will cue the beginning of the next modern era in Canadian payments innovation. Despite significant delays, Payments Canada continues to advise that it is progressing on the RTR project, according to the most recent update by Payments Canada on January 29, 2025, including making progress on the readiness of Interac e-Transfer, the RTR exchange and development of fraud strategy.
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