Understanding the New Rules in Canada's Payment Card Industry
The goal of these changes is to make the payment system more transparent, accountable, and safer for consumers and merchants.
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The Canadian payment industry is going through a major transformation with the upcoming implementation of the revised Code of Conduct for the Payment Card Industry. Launched on October 30, 2024, these new rules are set to shake up how payments are made in Canada. The goal of these changes is to make the payment system more transparent, accountable, and safer for consumers and merchants.
With an already stellar reputation for regulatory compliance, the Amilia team acted quickly to adhere to these new rules in order to further bolster its recreation and membership management platform.
Further, Amilia has enthusiastically embraced the newly established Retail Payment Activities Act (RPAA), which is a law in Canada that regulates payment service providers (PSPs). Its aim is to keep consumers safe by making sure that payment systems are secure and work well. The act requires the Bank of Canada to regulate payment service providers in Canada, which will now be required to comply with strict guidelines and report to the Bank annually.
“Very few people understood the scope of these new regulations” says Amilia Director of Operations Sebastien Proulx-Bonneau. “Not many people outside of the fintech world are aware of this, and many technology companies brushed it off thinking they’re not concerned. We're keeping up to date with regulations so that our clients don’t have to”
This shift doesn't just affect traditional banks but also involves Payment Service Providers (PSPs), FinTech companies, and other important players who play key roles in processing payments in today's digital world.
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"We're keeping up to date with regulations so that our clients don’t have to,” says Amilia Director of Operations Sebastien Proulx-Bonneau.
The updated Code of Conduct means that more organizations, including the Federal Consumer Agency of Canada, will be keeping an eye on how payments are managed. It also means that rules are now in place for third-party processors involved in agreements between merchants and banks. These changes are meant to create better oversight and responsibility throughout the payment process.
Both the Code of Conduct and the Retail Payment Activities Act have also expanded to cover more types of organizations. This recognizes the growing variety of payment solutions in Canada and highlights the need for all players to have strong compliance practices to keep payments secure and reliable.
One need only look at the collapse of the U.S.-based fintech middleman Synapse to understand what’s at stake. The company filed for Chapter 11 bankruptcy protection last April and shut down its services to some of its partners, including Evolve Bank & Trust. That has caused disruptions for customers of Synapse’s partners, leading to accounts being frozen or showing funds not existing at all. In the end, the collapse and bankruptcy of Synapse left more than 100,000 Americans locked out of a collective $90 million of their own money, prompting a class action lawsuit.
“It's a very real recent scenario from the US that highlights how reliance on technology companies can have real-life impacts on the financial world. This illustrates why the Canadian federal government is taking action to broaden the regulatory regime to include technology providers, as more and more of the movement of money is outsourced or relies on a variety of third-party companies,” says Proulx-Bonneau.
The new rules list a range of retail payment functions that everyone involved in payments must follow, including managing accounts, holding funds, and providing services like fund transfers and settlement.
“The goal of the legislation was for the Bank of Canada to also regulate payment service providers (PSPs). The legislation is very, very broad in the definition of a PSP and includes POS software companies as well. Even though most software companies outsource payment processing to 3rd parties, the RPAA considers the facilitation of payment instructions as a retail payment activity in scope of regulations.
“We put a lot of emphasis on security already but now we're going to have to abide by the specific guidelines of the Bank of Canada."
As a major player in the payment industry, Amilia and other organizations need to follow a set of rules outlined in the new regulations. These rules are designed to make sure that everyone is transparent, accountable, and keeping payments safe for everyone involved.
To underscore the importance of these regulations, the Bank of Canada advised that failure to comply with the RPAA could result in fines and orders to stop payment operations.
“We put a lot of emphasis on security already but now we're going to have to abide by the specific guidelines of the Bank of Canada. This might be an additional burden for smaller companies but overall will strengthen the integrity of the Canadian payment ecosystem.”
In conclusion, the rollout of the updated Code of Conduct for the Payment Card Industry and the Retail Payment Activities Act represents a significant moment in the evolution of the Canadian payment landscape. By embracing these changes and diligently following the compliance requirements, key industry players like Amilia can confidently navigate the shifting regulatory environment.
The focus on transparency, accountability, and consumer protection embedded within the new regulations sets the stage for a more secure and reliable payment ecosystem that benefits all stakeholders involved. This commitment to adapting and upholding best practices ensures that the integrity and efficiency of payment operations remain a top priority in the ever-evolving world of payment technology.