Federal Government Releases Draft Retail Payments Activities Act
On April 30, as part of the 2021 federal budget, Canada’s Deputy Prime Minister and Minister of Finance (the “Minister”) introduced Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures1 (the “Bill”) for first reading in Parliament. Included in the Bill is the initial draft of the Retail Payment Activities Act (RPAA), which sets out the first retail payments oversight framework to apply to retail payment providers in Canada. The purpose of the draft legislation is to implement the framework first announced in the federal 2017 Consultation Paper: A New Retail Payments Oversight Framework.2
By enacting the RPAA, the federal government aims to safeguard and streamline the movement of funds, address national security risks that may be posed by payment service providers, mitigate certain operational risks, and “foster competition and innovation in payment services by building confidence in the retail payment sector”.3 The RPAA would introduce and integrate non-traditional financial services participants, including financial technology and payment technology companies (fintechs and paytechs) into the larger Canadian payments landscape. Notably, the RPAA emerges in the context of a number of regulatory and other initiatives in Canada’s payments industry, including the payments modernization initiative, ongoing open-banking consultations and amendments to the Payment Clearing and Settlement Act.
General Application of the RPAA
The RPAA would apply to “retail payment activity” that is performed for an end user in Canada by a Canadian “payment service provider” (PSP) or by a PSP outside of Canada that “directs” retail payment activities at individuals or entities in Canada. To “direct” certain payment activities in this context may include (a) marketing or advertising to Canadians, (b) using a “.ca” domain name, or (c) being listed in the Canadian business directory.4
“Retail Payment Activity” is defined in the RPAA as a payment function that is performed in relation to an electronic funds transfer that is made in the currency of Canada or another country or using a unit that meets prescribed criteria.
A “Payment Function” is broadly defined as:
- the provision or maintenance of an account that, in relation to an electronic funds transfer, is held on behalf of one or more end users;
- the holding of funds on behalf of an end user until they are withdrawn by the end user or transferred to another individual or entity;
- the initiation of an electronic funds transfer at the request of an end user;
- the authorization of an electronic funds transfer or the transmission, reception or facilitation of an instruction in relation to an electronic funds transfer; or
- the provision of clearing or settlement services.
A “Payment Service Provider” or “PSP" is an individual or entity that performs payment functions as a service or business activity that is not incidental to another service or business activity. Establishing exactly what is “incidental” in this context will require some interpretation or clarification in future revisions of the RPPA or in regulations.
Exempt Activities
Numerous activities will be exempt from the RPPA’s general application. Notably, the proposed legislation exempts payment functions that are performed in relation to an electronic funds transfer that is made with an instrument that is issued by a merchant — or by an issuer that is not a PSP and has an agreement with a group of merchants — and that allows the holder of the instrument to purchase goods or services only from the issuing merchant or any merchant in the group. This provision will effectively exclude the use of closed-loop gift cards from the RPPA’s application. Other exempt activities include payment functions giving effect to eligible Canada Deposit Insurance Corporation Act contracts, cash withdrawals from an ATM, payment functions performed using a system under section 4 of the Payment Clearing and Settlement Act (including Interac e-Transfer), and payment functions performed exclusively between affiliates.
Exempt Entities
The RPAA exempts specific regulated financial institutions (banks, authorized foreign banks, credit society, and savings and credit union) and entities already governed by other legislation (companies governed by the Insurance Companies Act (Canada) or the Trust and Loan Companies Act (Canada), and a trust company regulated by a provincial act).
Further exemptions may be prescribed in the RPAA regulations.
Registration and Other Requirements
Persons currently acting as PSPs will be required to apply to be registered by the Bank of Canada (the “Bank”) within the designated transitional period and new PSPs will be required to apply to be registered by the Bank before conducting any retail payment activities. The Bank will maintain a public registry of registered PSPs, PSPs whose applications were refused, and PSPs whose applications were revoked.
At present, most PSPs are required to register as money services businesses Canada’s anti-money laundering legislation (the “PCMLTFA”) and to comply with certain record-keeping and reporting obligations. These entities will also be required to register as PSPs under the RPAA, creating the possibility of parallel compliance requirements under the RPAA and PCMLTFA. It is generally anticipated that regulatory guidance will be published that addresses the interoperability of the RPAA and PCMLTFA.
In addition to registration requirements, the RPPA sets out disclosure requirements for PSPs, including the filing of an annual report to the Bank, and specific requirements regarding the holding and handling of end user funds PSPs that perform retail payment activities must also implement and maintain a risk management and incident response framework that meets certain prescribed requirements.
Looking Forward
The Goodmans Financial Services Regulatory Group will continue to monitor legislative and regulatory developments and assist our clients to navigate the implications of Bill C-30. For more information related to the Bill, please contact the authors of this article or any member of our Financial Services Regulatory Group.
The authors would like to Tommy Friedlich, Articling Student-at-Law, for his assistance in preparing this Update.
1 C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures, 2nd Sess, 43rd Parl, 2021, (first reading 30 April 2021).
2 Department of Finance Canada, “A New Retail Payments Oversight Framework” (6 October 2017), online: Government of Canada < https://www.canada.ca/en/department-finance/programs/consultations/2017/new-retail-payments-oversight-framework.html>.
3 Supra note 1 at cl 178.
4 Financial Transactions and Reports Analysis Centre of Canada, “Guidance Glossary” (4 May 2021), online: FINTRAC < https://www.fintrac-canafe.gc.ca/guidance-directives/glossary-glossaire/1-eng>.
Expertise
Authors
Insights
-
Financial Services Regulatory
FINTRAC Advisory Concerning Financial Transactions Related to High-Risk Countries Identified by FATF
On March 20, 2023, the Financial Transactions and Reports Analysis Centre (FINTRAC) issued an advisory (the “Advisory”) concerning financial transactions related to countries identified by the… -
Technology
U.S. District Court Finds NBA Top Shot Moments may be Subject to U.S. Securities Laws
On May 12, 2021, a class action law suit was filed against Dapper Labs, Inc. in the U.S. District Court for the Southern District of New York (the “Court”) alleging that Dapper Labs violated U.S… -
Technology
Canadian Securities Administrators Announce Enhanced Pre-Registration Undertaking Requirements for Crypto Trading Platforms
Further to its December 12, 2022 announcement, the Canadian Securities Administrators (CSA) published Staff Notice 21-332 – Crypto Asset Trading Platforms: Pre-Registration Undertakings (“SN… -
Financial Services Regulatory
Non-Financial Institution Mortgage Lenders May Soon Become Subject to Anti-Money Laundering/Anti-Terrorist Financing Regime
Proposed amendments to certain regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) purport to subject non-financial institution mortgage lenders to the… -
Financial Services Regulatory
FINTRAC Publishes Terrorist Activity Financing Indicators for Suspicious Transactions
On December 15, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) published an Operational Alert: Terrorist Activity Financing (the “Alert”). The Alert identifies terrorist… -
Banking and Financial Services
The Acquisition and Leveraged Finance Review 9th Edition - Canada Chapter
Jean Anderson, David Nadler, Carrie Smit, David Wiseman, Caroline Descours and Cathy Costa-Faria co-authored the Canada Chapter of The Law Reviews' Acquisition and Leveraged Finance Review 9th Edition…
Featured Work
-
Restructuring
Sherritt International Corporation Completes $90 Million Notes Purchase Transaction
Goodmans LLP represented Sherritt International Corporation in its $90 Million Notes Purchase Transaction Pursuant to Oversubscribed Offers… -
Banking and Financial Services
Argonaut Gold Inc. Announces Successful Completion of Magino Financing Package
Goodmans LLP represented Macquarie Bank Limited and a syndicate of lenders in connection with a financing provided to Argonaut Gold Inc. ("Argonaut… -
Banking and Financial Services
Colbeck Capital Management LLC US$70 Million Term Loan
Goodmans LLP acted for Colbeck Capital Management LLC (“Colbeck”) in connection with a US$70 million term loan to finance the acquisition and combination of Berlitz Corporation, ELS and The ILSC… -
Banking and Financial Services
Oxford and CPPIB Joint Sale of Royal Bank Plaza
Goodmans LLP acted for Oxford and CPPIB in connection with their joint sale of Royal Bank Plaza, an iconic, two-tower office plaza in the heart of downtown Toronto, to a Spanish investment firm… -
Mergers and Acquisitions
Amp Energy’s Innovative $350 Million Cross-Jurisdictional Credit Facility
Goodmans LLP acted for Amp Solar Group in connection with Amp Energy’s innovative $350 million cross-jurisdictional credit facility with a consortium of leading institutional investors including… -
Mergers and Acquisitions
Fiera Private Debt Construction, Acquisition and Term Loan Facility to BioNorth Energy
Goodmans acted as lead counsel to Fiera Private Debt on a construction, acquisition and term loan facility to BioNorth Energy to finance the acquisition of a 36.8 MW biomass-fired power generation…
News & Events
-
Banking and Financial Services
The Canadian Legal Lexpert Directory 2023 Continues to Recognize Goodmans
We are proud to announce we have once again been recognized in The Canadian Legal Lexpert Directory 2023.85 Goodmans lawyers have been recognized as top-tier in their fields and leaders across… -
Banking and Financial Services
Chambers and Partners Continues to Honour Goodmans with Global Recognition
We are proud to announce Goodmans LLP has once again received top tier recognition from Chambers and Partners in the Chambers Global 2023 Guide released today. Recognition from Chambers and… -
Banking and Financial Services
Goodmans named one of Canada's Best Law Firms for 2023
We’re pleased to announce Goodmans was once again named to The Globe and Mail’s Canada’s Best Law Firms list, recognizing the firm as one of the country’s best law firms for 2023.Goodmans was…