BoC asks banks to gear up for regulation

The Bank of Canada has urged businesses to get ready for a regulatory framework that will apply to organisations that offer services like electronic payment systems and digital wallets.

The central bank was given responsibility for regulating the retail payments sector by the federal government in the spring of 2021. Banks, credit unions, and insurance companies are excluded because they are already regulated; nonetheless, this encompasses fintech and paytech businesses of all sizes.

Currently, the project is being worked on by about 40 personnel of the Bank of Canada. A committee comprised of representatives from 22 payment businesses advised the bank for a whole year. It has recommended changes to the federal government and anticipates that soon, draught regulations will be released online for feedback. The plan is to begin adding enterprises to the system of oversight in 2024 and to begin supervision the following year.

The central bank is urging businesses to consider the rules before they are finalised, even though the new regulatory regime is unlikely to go into effect before 2025.

The new regulation is a reaction to consumers’ and small companies’ growing usage of digital payments. The COVID-19 epidemic has caused the surge, which has been ongoing for years, to pick up speed.

The Retail Payments Activities Act, passed in 2021, outlines the general needs of the new regulatory environment, but the specifics are still being worked out. To avoid losses in the event of bankruptcy, payment providers are expected to register with the central bank, offer risk management strategies, and adhere to regulations regarding the safety of customer deposits.

The purpose of this Act is to protect Canadians’ faith in PSPs. To make sure that PSPs are controlling specific risks that can have an impact on their users, the Act creates a new supervisory framework. Building trust in the security and dependability of payment services is the driving force behind everything that has been done.

The Bank of Canada will have the authority to levy a fine of up to USD 10 million for breaking the law, albeit only severe offences would result in such a punishment.

The Act and upcoming rules will lay out how the new structure will operate. However, supervisory guidance will be added to the documents to make sure that industry participants understand what is expected of them.

If a PSP violates the Act or its rules, the Bank of Canada is authorised by the Act to take appropriate action. The first step in this process is a compliance agreement that specifies the conditions under which the PSP must improve its operations. A notice of violation is the next stage of enforcement. The name of the business and the kind of infractions it committed will be made public on the internet after it is issued.

Finally, if a PSP is committing – or is about to commit – an act that will have a significant negative impact on customers and other end users, the Governor has the authority to impose a compliance order. Additionally, if a situation of non-compliance worsens, a court enforcement action may be taken to force the service provider to abide by the Act or court order.

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