The Government of Canada is proposing new oversight and rules to govern the changing world of payments.
In Budget 2019, Ottawa included a section on "Supporting an Innovative and Well-Functioning Canadian Payments System." The section states that the federal government is proposing to bring in a new framework under which certain payment providers would have to establish "sound operational risk management practices" and ensure users’ funds are protected against losses.
"A range of new innovative service providers and technologies are emerging that are changing how Canadians make payments," said the Department of Finance in a written statement after the federal budget was announced. "The proposed retail payments oversight framework is needed so that retail payment services remain reliable and safe and continue to support innovative service offerings to Canadians."
The new framework would apply to firms providing retail payment activities, such as holding onto funds for their users or transmitting payment messages. This would extend to payment card networks and non-traditional players, including financial-technology companies (fintechs) offering such services.
However, payment providers that are already subject to similar federal or provincial rules would be exempted from the new regulations. While the proposed framework has already been under consideration for more than a year, it is looming over a payments sector that is becoming more crowded. Tech giants such as Amazon.com (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL) already have payment options on offer. There is also a constellation of start-up and international companies dabbling in payments in Canada — some of which are currently free from oversight.
Under Ottawa’s proposal, the Bank of Canada would ensure payment providers comply with the financial and operation requirements. The central bank would also keep a public registry of regulated payment providers. The new framework would help level the playing field by bringing newer players under a regulatory umbrella, according to Payments Canada, the Ottawa-based organization that cleared and settled more than $53 trillion in payments made last year via cheques, debit cards, direct deposits and other options.
Payments Canada says there are currently 110 financial institutions participating in one or more of its systems — all of them traditional firms, such as banks and credit unions. The new framework could also offer legitimacy for fintech companies, many of which are currently forced to partner with a financial institution that is already connected to Payments Canada’s systems.
