Publication date: October 16, 2024
This supervisory policy addresses why the Bank of Canada may offer a compliance agreement to a payment service provider (PSP), the process for entering into a compliance agreement with the Bank of Canada, and what PSPs should expect if they enter into this type of agreement.
For terminology about retail payment supervision, refer to the glossary.
Introduction
A compliance agreement is a tool that the Bank of Canada may use to further a PSP’s compliance, or to address a PSP’s non-compliance, with the Retail Payment Activities Act (RPAA) and the Retail Payment Activities Regulations (RPAR).
There are two types of compliance agreements the Bank may offer to a PSP:
- a compliance agreement under section 71 of the RPAA
- a compliance agreement under paragraph 76(2)(b) of the RPAA, which accompanies a notice of violation (NOV) that includes an offer to reduce by 50% any administrative monetary penalty (AMP) set out in the NOV
A PSP has no obligation to enter into a compliance agreement with the Bank. The Bank may, however, take alternative action(s) to encourage a PSP to comply with the RPAA if the Bank or the PSP choose not to enter into the compliance agreement. See further information under Key features of section 71 and section 76 compliance agreements.
Process for entering into a compliance agreement
This section outlines the steps involved in the compliance agreement process. The compliance agreement process is conducted through the PSP’s online account in PSP Connect.
Receiving an offer to enter a compliance agreement
The Bank will start the process by offering the PSP a compliance agreement with terms and conditions that set out the PSP’s obligations. The PSP will receive an email notification that there is a new document available for viewing in PSP Connect.
Timeline
The Bank will provide the PSP with a timeline for completing the review and finalizing the compliance agreement. The Bank will specify in the compliance agreement the corrective actions the PSP must take. It is likely that the Bank and the PSP will have discussed the corrective action prior to the compliance agreement being offered to the PSP. Compliance agreements referred to in section 71 of the RPAA are finalized in accordance with the timeline set by the Bank.
Compliance agreements referred to in paragraph 76(2)(b) of the RPAA, which accompany a NOV with an AMP, must be finalized within 30 days after the NOV is issued. If a PSP does not enter into the agreement and does not pay the reduced AMP set out in that agreement, the PSP will be deemed to have refused to enter into the compliance agreement and will be liable to pay the full AMP set out in the NOV.
Responding to an offer to enter a compliance agreement
After reviewing the compliance agreement, the PSP can:
- accept the agreement
- propose modifications to the agreement
- refuse to enter into the agreement
PSP Connect provides instructions for each option. PSP Connect also gives the PSP an opportunity to ask questions or provide comments that may assist the Bank in considering the PSP’s response to the offer.
Requesting modifications
A PSP’s proposal to modify the terms and conditions of the agreement must be submitted through PSP Connect using the change request form within the timeline provided by the Bank. Proposals for modifications are limited to the terms and conditions section of the agreement. The Bank may accept or reject the proposed modifications or propose alternatives.
Withdrawing an offer
The Bank may withdraw the offer to enter into a compliance agreement. The offer may be withdrawn at any time until both the Bank and the PSP have signed the agreement. The withdrawal may occur for various reasons including, for example, if the Bank and the PSP cannot agree to the terms and conditions or if the PSP acts in bad faith.
Signing a compliance agreement
Once the Bank and the PSP agree to the terms and conditions of the compliance agreement, they can finalize the agreement by signing it in PSP Connect. The signatory designated by the PSP is required to log in to PSP Connect to access and sign the agreement. The compliance agreement is legally binding only once both parties have signed the agreement.
Amending the terms and conditions of a compliance agreement
After entering into a compliance agreement, the Bank or the PSP may request an amendment to the terms and conditions through PSP Connect. This type of request may occur if, for example, the PSP cannot comply with the terms and conditions for reasons beyond its control. Requests for an amendment must include a rationale and are not granted automatically.
Providing progress updates
Once the compliance agreement is in effect, the Bank may require the PSP to provide progress updates, particularly when there are multiple due dates associated with the terms and conditions of the agreement. The PSP is expected to provide updates in accordance with the agreement’s terms and conditions. The PSP will submit updates by logging into PSP Connect and providing relevant information or uploading documents for the Bank’s review. The Bank may, at any time, take steps to verify whether the PSP has met one or more of its obligations under the compliance agreement.
The Bank will notify the PSP when the term of the compliance agreement has ended. After that date, the PSP is not permitted to input information through the compliance agreement progress update function in PSP Connect. However, the Bank may contact the PSP to obtain additional information.
Bank notification regarding compliance
If the Bank considers that the PSP has complied with the compliance agreement, it will notify the PSP through the message centre in PSP Connect and will send an email notification. If the Bank considers that the PSP has not complied with the agreement, it may issue a NOV to the PSP (for section 71 compliance agreements) or a notice of default (for section 76 compliance agreements).
Key features of section 71 and section 76 compliance agreements
Section 71 compliance agreements
The Bank may enter into an agreement with a PSP under section 71 of the RPAA for the purpose of implementing any measure that is designed to further compliance with the RPAA and RPAR. If the Bank offers this type of compliance agreement, it will not count toward the PSP’s violation history for calculating future AMPs. The Bank will publish information related to a section 71 compliance agreement only when the PSP does not comply with the agreement and the Bank issues a NOV in relation to the non-compliance. For more information, see the Publication related to compliance agreements section in this policy.
If the PSP chooses not to enter into the agreement, or if the Bank withdraws the offer, the Bank may make use of other enforcement tools. These tools could include issuing a NOV with an AMP if the Bank has reasonable grounds to believe that the PSP has committed a violation. Similarly, if a PSP does not fulfill its obligations under a section 71 compliance agreement, the Bank may take enforcement action. Such action may include issuing a NOV for any applicable designated violation (including non-compliance with the section 71 compliance agreement, which is a very serious violation with a possible penalty of up to $10,000,000). If the PSP disagrees with a NOV or an AMP issued by the Bank, the PSP can make representations to the Governor of the Bank of Canada within 30 days after the day on which the NOV is served on the PSP.
Read about the Bank’s supervisory policy on AMPs and the Bank’s supervisory policy on the Governor’s review process.
Section 76 compliance agreements
If the Bank decides to issue a NOV with an AMP, it may offer to reduce the AMP by 50% if the PSP enters into a compliance agreement with the Bank (see paragraph 76(2)(b) of the RPAA). A PSP that enters into such an agreement is deemed to have committed the violation referred to in the NOV (section 80 of the RPAA). The violation will count toward the PSP’s violation history and may therefore be considered in establishing an AMP amount for violations found in the future.
When a PSP enters into a compliance agreement under paragraph 76(2)(b) of the RPAA, the Bank intends to publish certain information about the agreement according to its terms and conditions. Additional information is set out under the section titled Publication related to compliance agreements.
Compliance agreements referred to in paragraph 76(2)(b) of the RPAA will not have effect until the PSP:
- signs the agreement, and
- pays the reduced AMP amount
The PSP must sign and pay within 30 days after the day on which the PSP received the NOV. If the PSP fails to do so, the PSP will be deemed to have refused to enter into the agreement and is liable to pay the full AMP amount set out in the NOV.
If the PSP refuses to enter into the agreement, or if the Bank withdraws the offer, the PSP is liable to pay the full AMP amount set out in the NOV, and all other NOV procedures apply.
Signing the compliance agreement without paying the reduced AMP does not mean the PSP has entered into the compliance agreement.
If the Bank and the PSP enter into a section 76 compliance agreement, but the Bank later considers that the PSP has not complied with the agreement, the Bank may issue a notice of default to the PSP. In this case, the PSP will be liable to pay the remaining 50% of the original AMP, plus an additional penalty equal to 100% of the original AMP. If the PSP disagrees with the notice of default, it can request a Governor’s review within 30 days after the day on which the notice of default is served.
Read about the Bank’s supervisory policy on AMPs and the Governor’s review process.
Publication related to compliance agreements
The Bank will not make public the fact that it enters into a compliance agreement with a PSP under section 71 of the RPAA. This type of agreement is private and remains confidential between the PSP and the Bank. However, if the PSP does not comply with the agreement and the Bank issues a NOV, the Bank will publish the details of the NOV in accordance with section 93 of the RPAA.
As part of the compliance agreement offered under paragraph 76(2)(b) of the RPAA, the Bank will make public certain details of the agreement as outlined in the agreement’s terms and conditions. For example, the Bank may publish a description of the NOV and note that the PSP has entered into a compliance agreement.
Confidentiality related to compliance agreements
Note that a compliance agreement and its related materials (e.g., drafts, communications) are confidential and considered prescribed supervisory information by the Bank. This type of information cannot be disclosed by the PSP and may only be published by the Bank in accordance with the terms and conditions of the compliance agreement, or as permitted by law. Disclosure of such information by the PSP may be considered a violation that is subject to Bank enforcement.