At this year’s Canadian Innovation Exchange Summit, the Bank of Canada warned financial technology firms across the country to be aware of coming regulations.
“Exchanging payment for goods and services is moving more and more toward the digital universe,” said Ron Morrow, Executive Director for Retail Payments Supervision for the Bank. “The payments ecosystem in Canada is evolving rapidly, with a sharp uptick in the use of mobile and digital payments.”
Consumers’ use of cash at the point of sale decreased to 22% in 2021, down from 54% in 2009. About 85% of merchants now accept electronic forms of payments, up from 60% in 2018, according to data supplied by Morrow.
“When money changes hands electronically in these new and different ways, we all need to make sure that consumers and the payments ecosystem are protected,” Morrow stated at the Summit.
He says the coming legislation “will safeguard the trust that Canadians place in [payment service providers].
“The Act establishes a new supervisory framework to ensure that PSPs are managing certain risks that could affect their users,” Morrow explained. “The impetus behind all of this is to build confidence in the safety and reliability of payment services.”
Morrow says that if you’re in the business “of helping people and companies make day-to-day payments, or store or transfer their money through electronic means,” then your organization could be deemed a PSP and fall under this new framework.
“We currently estimate there are over 2,500 entities that will come under our regulatory supervision,” says Morrow, including well-established entities that are household names and “a whole suite of newly established fintech companies.”
Morrow says the framework will recognize that companies will have different business structures and operational processes.
“There is no ‘one size fits all’ methodology,” Morrow agrees. “Moreover, PSPs can meet our expectations using many approaches.”
According to Morrow, the Act and forthcoming regulations “will establish the mechanics of the new framework.”
“We need to be forward-looking to assess emerging risks and practices in retail payment activities—and to keep up with the spirit of innovation that is driving changes in how Canadians pay for goods and services,” he says.
In due course, the draft regulations will be published online, which will open the door to a formal comment process. This will when fintechs have a chance to provide feedback about the new requirements.
“We will continue to seek feedback; it’s important that we take the time to ensure we’re doing this right, from the outset,” Morrow stated at the Summit. “By ensuring key risks are well managed, we will further build and maintain Canadians’ confidence [in financial technology].”