Publication date: December 12, 2023
The following fictional case scenarios illustrate what may be considered an affiliated entity, as defined in the Retail Payment Activities Act.
The examples provided are not a replacement for the Criteria for registering payment service providers supervisory policy, but rather they are meant to complement the policy. They should be read in conjunction with the policy.
Case scenario: Payment service provider directly controls a subsidiary
Parent A is a payment service provider (PSP) that performs retail payment activities and is subject to the Retail Payment Activities Act (RPAA). Parent A holds 51% of the voting securities of another corporation, Subsidiary B, which is sufficient to elect a majority of Subsidiary B’s directors. Under section 3 of the RPAA, one entity is affiliated with another if one of them is the subsidiary of the other. An entity is a subsidiary of another if that other entity controls it by holding, directly or indirectly, more than 50% of its voting securities, sufficient to elect a majority of its directors.
This means that Subsidiary B is a subsidiary and an affiliated entity of Parent A. When applying to register as a PSP with the Bank of Canada, Parent A should identify Subsidiary B as an affiliated entity.
In addition, Subsidiary B may be required to register under the RPAA, even though Parent A is already registered. If Subsidiary B meets the registration criteria, it needs to register with the Bank of Canada separately from Parent A, and should also identify Parent A as an affiliated entity.
Case scenario: Payment service provider who indirectly controls a subsidiary
Parent A is a PSP that performs retail payment activities and is subject to the RPAA.
Parent A holds 90% of the voting securities of another corporation, Subsidiary B, which is sufficient to elect a majority of Subsidiary B’s directors.
Subsidiary B in turns holds 55% of the voting securities of another corporation, Subsidiary C, which is sufficient to elect a majority of Subsidiary C’s directors.
In this scenario, both Subsidiary C and Subsidiary B are affiliated entities of Parent A because Parent A:
- directly controls Subsidiary B
- indirectly controls Subsidiary C through Subsidiary B
When Parent A applies for registration, it should identify Subsidiary B and Subsidiary C as affiliated entities and provide the applicable information required under the RPAA.
In addition, if either Subsidiary B or Subsidiary C meets the registration criteria, it needs to register with the Bank of Canada and identify its affiliates, even though Parent A is already registered.
Case scenario: Payment service provider who indirectly controls an entity
Parent A is a PSP that performs retail payment activities and is subject to the RPAA. Parent A holds 51% of the voting securities of other corporations—Subsidiary B and Subsidiary D. These voting securities are sufficient to elect a majority of Subsidiary B’s and Subsidiary D’s directors. According to section 3 of the RPAA, this means that Parent A directly controls Subsidiary B and Subsidiary D.
Subsidiary B and Subsidiary D each hold 31% of the voting securities of another corporation, Subsidiary E. Individually, neither Subsidiary B nor Subsidiary D holds enough voting securities to elect a majority of Subsidiary E’s directors. But together, they hold 62% of the voting securities of Subsidiary E, which is sufficient to elect a majority of Subsidiary E’s directors. According to section 3 of the RPAA, this means that Parent A (which controls Subsidiary B and Subsidiary D) also indirectly controls Subsidiary E.
Therefore, when Parent A applies for registration with the Bank of Canada, it should identify Subsidiary B, Subsidiary D and Subsidiary E as affiliated entities and provide the applicable information required under the RPAA.
In addition, if any of Subsidiary B, Subsidiary D or Subsidiary E meets the registration criteria, it needs to register with the Bank of Canada and identify its affiliates, even though Parent A is already registered.
Case scenario: Payment service provider who is an affiliate
Subsidiary D is a PSP that performs retail payment activities and is subject to the RPAA. Parent A holds 51% of the voting securities of both Subsidiary B and Subsidiary D, which is sufficient to elect the majority of Subsidiary B’ and Subsidiary D’s directors.
Under section 3 of the RPAA, an entity is affiliated with another if:
- one of them is a subsidiary of the other
- both are subsidiaries of the same entity
- each of them is controlled by the same entity
In this example, Parent A controls both Subsidiary B and Subsidiary D, which means they are affiliated entities. Therefore, when applying for registration with the Bank of Canada, Subsidiary D should identify Parent A and Subsidiary B as affiliated entities.
If Parent A or Subsidiary B meets the registration criteria, it needs to register with the Bank of Canada and identify its affiliates, even though Subsidiary D is already registered.
Case scenario: General partner controls limited partnership
Company F is a PSP that performs retail payment activities and is subject to the RPAA. Company F is a limited partnership, with the following limited partners: Company G and Company H.
Company F’s general partner is Company I. As general partner, Company I controls the limited partnership Company F.
Under section 3 of the RPAA, one entity is affiliated with another entity if each of them is controlled by the same entity. In this situation:
- Company F is affiliated with Company I because, as general partner, Company I controls Company F (the limited partnership).
- Company F is not affiliated with Company G or Company H because Company I does not control these limited partners.
When Company F applies for registration, it should identify only Company I as an affiliated entity and provide the applicable information required under the RPAA.
If any of Company G, Company H or Company I meets the registration criteria, it needs to register with the Bank of Canada and identify its affiliates, even if Company F is already registered.
Case scenario: Individual controls an entity
Company J is a PSP that performs retail payment activities and is subject to the RPAA. Company J is a limited partnership with the following limited partners: Company L and Company M.
Family Trust K holds 100% of the voting securities of Company J, sufficient to elect a majority of Company J’s directors.
Individual K holds an interest in Family Trust K that entitles him to receive 55% of the trust’s profits.
Under section 3 of the RPAA, an individual is affiliated with an entity if the individual controls the entity. An individual controls an entity other than a corporation or limited partnership if the individual, directly or indirectly, holds an interest in that entity that entitles them to receive more than 50% of that entity’s profits or more than 50% of its assets on dissolution.
In this example, ABC Canada is affiliated with:
- the Family Trust K, which controls Company J
- Individual K, as the individual who controls the Family Trust K
When Company J applies for registration, it should identify Individual K and the Family Trust K as affiliated entities and provide the applicable information required under the RPAA.
Disclaimer
The case scenarios are illustrative examples reflecting the Bank of Canada’s interpretation of certain requirements set out in the Retail Payment Activities Act (RPAA). All names, facts and descriptions in these scenarios are entirely fictitious and do not reflect any real or actual individuals or entities.
Additionally, they do not represent legal advice and should not be used as a replacement for seeking such advice if an individual or entity is unsure about whether they are required to register with the Bank of Canada as a payment service provider. The nature of the products and services offered by each individual or entity will vary, as will the circumstances around offering these products and services. Therefore, any individual or entity that may be subject to the RPAA should assess their own situation on a case-by-case basis according to their own facts and circumstances. Any entity or individual that may be subject to the RPAA is ultimately responsible for determining whether they are required to register with the Bank.
The examples provided are not a replacement for the Criteria for registering payment service providers supervisory policy, but rather they are meant to complement the policy. They should be read in conjunction with the policy.
Topic(s):
Registration