Canada’s Retail Payment Landscape Shifts: New Rules for PSPs are Now Live
Toronto, ON – September 8, 2025 – A significant change has swept through Canada’s financial technology sector. As of today, the Retail Payments Activities Act (RAAPD) is fully in force, bringing a new era of regulatory oversight to Payment Service Providers (PSPs). This isn’t just a tweak to the rules; it’s a fundamental shift in how payment companies operate, designed to protect consumers and ensure the stability of the Canadian financial system. For PSPs, and those navigating the registration process, immediate compliance is critical. This is a breaking news development with long-term implications for the future of payments in Canada, and we’re here to break it down for you.
What Does the RAAPD Mean for Payment Service Providers?
The core of the RAAPD centers around a robust “protection framework” for end-user funds. Simply put, PSPs holding customer money must now demonstrate a clear and legally sound system for safeguarding those funds, from the moment they’re received to the moment they’re withdrawn or transferred. This isn’t about simply having a bank account; it’s about establishing a dedicated, protected environment. The Bank of Canada (BoC) has recently updated its Retail Payments Supervision Frequently Asked Questions (FAQ) to provide much-needed clarity on these expectations.
Trust Accounts and Legal Scrutiny: A Deeper Dive
One of the most significant updates concerns the use of trust or trust accounts. The BoC is raising the bar. It’s no longer sufficient to simply *believe* a trust arrangement is valid under Canadian law. PSPs will now be required to submit a written legal opinion, during periodic assessments, confirming the arrangement is both “express and valid” and meets the protective objectives of the RAAPD. This opinion must detail compliance with either common law (for most provinces) or the Civil Code of Quebec, assess potential risks, and outline how those risks are being managed. Think of it as a legal stress test for your fund protection strategy.
Beyond Trust Accounts: Insurance, Guarantees, and Deposit Insurance
While trust accounts are a key component, they aren’t the only option. PSPs can also utilize insurance or guarantee products. However, the BoC is firm: relying solely on deposit insurance is not enough. Deposit insurance protects the *financial institution* – not necessarily the end-user in the event of a PSP’s insolvency. The goal is rapid access to funds for consumers, something deposit insurance doesn’t guarantee in this scenario. Furthermore, the BoC won’t be pre-approving specific insurance products; the onus is on the PSP to ensure any chosen product meets all RAAPD requirements and that the insurer is independent of the PSP itself.
Key Takeaways from the BoC FAQ Update
- Settlement Funds Separation: Trust accounts used for protecting end-user funds should not be used for settling charges unrelated to that purpose. Keep those funds ring-fenced.
- Interest on Funds: PSPs can retain interest earned on end-user funds, but must seek legal advice to ensure it doesn’t invalidate the trust arrangement. Tax implications are also being addressed by the Ministry of Finance.
- Insolvency Procedures: PSPs must have clear procedures in place to notify insurers or guarantee providers in the event of insolvency. The BoC won’t be handling these notifications.
- Risk Management & Incident Response: While no standardized framework is mandated, PSPs must have a robust risk management and incident response plan. Existing frameworks can be adapted, provided they meet RAAPD requirements.
- Senior Manager Oversight: Senior managers are accountable for compliance, and don’t necessarily need to be physically located in Canada.
Don’t Miss the Deadline: First Annual Report Due March 31, 2026
Mark your calendars! The first annual report for PSPs is due March 31, 2026. The BoC will release the reporting form in early 2026, and PSPs can submit based on their own fiscal year, even if it differs from the standard January-December timeframe. This report will cover activities related to retail payments for the 2025 calendar year.
The RAAPD’s full implementation marks a pivotal moment for Canada’s payments ecosystem. PSPs must prioritize compliance, seek expert legal counsel, and proactively adapt their operations to meet these new standards. This isn’t just about avoiding penalties; it’s about building trust with consumers and fostering a secure, reliable payments landscape for the future. Stay tuned to Archyde for ongoing coverage and analysis of this evolving regulatory environment. For more in-depth information, see McMillan’s previous bulletins on the LAAPD regulatory framework here and here.
