Publication date: August 21, 2024

The following fictional case scenarios provide examples to help providers identify whether they perform the holding funds payment function, especially in the context of cross-border remittances.

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.

These examples build off each other. We recommend reading them in the order they appear.

Case scenario: Money transfer operator

Company A specializes in cross-border funds transfers for individuals and businesses. Company A’s main business line consists of enabling fast peer-to-peer electronic funds transfers (EFTs) from individuals in Canada to recipients in another jurisdiction for a fee. This is commonly referred to as providing remittance services.

When using Company A’s remittance services, customers communicate their personal and financial information as well as the beneficiary’s information. Company A stores this information in a database for use in future transactions. In doing so, Company A performs a payment function, i.e., provision or maintenance of an account.

Company A does not offer the option to defer payments. This means that upon validation of transaction details and receipt of the funds provided by the sender, Company A immediately issues instructions for funds to be transferred to the beneficiary’s account, in the recipient’s local currency. In doing so, Company A performs two additional payment functions: initiation of an EFT, and authorization of an EFT or the transmission, reception or facilitation of an instruction in relation to an EFT.

When providing its services, Company A does not at any point keep customer funds at rest. Instead, it follows the instructions provided by the sender to make the funds available to the receiver as soon as possible. This means that Company A does not hold funds according to the terms of the Retail Payment Activities Act (RPAA).

Based on these facts, Company A is a payment service provider (PSP) as defined under the RPAA and needs to register with the Bank of Canada, assuming it meets the other registration criteria.

Case scenario: Remittance service provider holding end-user funds

Like Company A, Company B also specializes in cross-border funds transfers for individuals and businesses. However, in addition to providing cross-border funds transfers, Company B also allows its users to open an account that can hold funds in multiple currencies, which it refers to as a multi-currency wallet. Company B’s customers can use their wallets to store funds in several currencies, easily convert their funds to another currency or make payouts in other jurisdictions. A debit card tied to this account is issued by Company B, pursuant to their agreement with an international card network.

Similar to Company A, Company B is a PSP and performs the payment functions of providing or maintaining an account; initiating an EFT; and authorizing an EFT or transmitting, receiving or facilitating an instruction in relation to an EFT. Unlike Company A, however, Company B also keeps customer funds at rest and available for future withdrawal or transfer. This means that Company B is performing a further payment function, i.e., holding funds on behalf of an end user. Performing this function comes with additional requirements under the RPAA relating to the safeguarding of those funds.

Based on these facts, Company B is a PSP as defined under the RPAA and needs to register with the Bank, assuming it meets the other registration criteria.

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.

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