Episode 28: CP Act amendments: so now what?

Transcript of the recording

Elizabeth Dempsey:
Hi everyone. Welcome to another episode of The PayPod. I'm Liz Dempsey, Lead of Event Communications and Content at Payments Canada, and I'll be your host today. It would be an understatement to say we are thrilled that the Fall Economic Statement proposed amendments to the Canadian Payments Act! Payments Canada and the ecosystem have been very public about the need for this change for quite some time, and it's amazing to see all of our hard work pay off. Joining me today is my colleague and driving force behind this huge amount of work, Lisa Sattler, Senior Advisor of Policy at Payments Canada.

Lisa Sattler:
Thanks, Liz. I was once the host of a PayPod episode, so it's nice to be on the receiving end of these questions today.

Elizabeth Dempsey:
That's right, Lisa. I promise to go easy on you, but not too easy. So let's jump right into the questions. I'll start with a quick overview question: What amendments did Payments Canada ask for in the CP Act and why?

Lisa Sattler:
So our legislation, the legislation that created Payments Canada, was established in the early 1980s. So along with our governance, our mandate, it also sets out who's eligible to be a member of Payments Canada. Those membership provisions in our legislation haven't changed in over 20 years. Since that time, payments have evolved significantly. We need to expand membership to accommodate the changing ecosystem. Only Payments Canada members, as per the legislation can participate on our systems. And there was interest in participation from three key groups, credit unions, payment service providers, and operators of other financial market infrastructures. So why? Really greater participation can improve competition, increase innovation and choice for Canadian consumers and businesses.

Elizabeth Dempsey:
Thanks, Lisa. That tees everything up and covers the why, but I want to ask you about the why now. Efforts to amend the CP Act to include broader access significantly ramped up in the past year or so, creating a sense of urgency. Why was that?

Lisa Sattler:
It's two things. I think it's our modernized payment systems and it's the introduction of the Retail Payments Activities Act. So right after the Fall Economic Statement, the government published final regulations for the Retail Payments Activities Act or the RPAA. That’s a huge step for modern payments, because it seeks to protect consumers by regulating the payment service providers in Canada. So there's requirements around safeguarding of funds, managing operational risks, for example. When these changes to our legislation happen and our membership expands, only PSPs, payment service providers, who are regulated by the RPAA will be eligible for Payments Canada membership and can be considered then for system participation. So right now we operate two systems; Lynx for our high value transactions and the Automated Clearing Settlement System or ACSS, which is known as our retail batch payment system. Think of Lynx as high value, low volume [of transactions] and ACSS as low value but higher volume [of transactions]. We're also working on an entirely new payment system, the Real-Time Rail (RTR), which will exchange, clear and settle account to account payments in seconds 24/7, 365 days a year. The RTR will open up a whole new world of instant payments. So why now? Well, with our journey to modernize our payment systems, there has been increased interest in access to our systems. Credit unions and PSPs are interested in more flexible access options to the RTR, and FMIs are interested in our Lynx system.

Elizabeth Dempsey:
Great explanation, Lisa. I'm definitely feeling the sense of urgency, but also a little intimidated by how much work still needs to be done. It feels like a lot. Perfect segue into my next question: so now what?

Lisa Sattler:
There's a lot of work for us now, so we really need to focus on examining our by-laws and rules. In terms of our own process to assess consequential changes to those rules and by-laws, we're in the process of assessing the details of the legislation that was recently introduced into Parliament for first reading. Then, based on the extent and nature of the possible changes to our legal framework, we'll determine if a consultation is needed. So it could be public, it could be targeted. Following this consultation, if there are by-law changes, we have to go through the regulatory approval process, including drafting with the Department of Justice, Canada Gazette publication, and those things can be a little unpredictable in terms of the timing, particularly if there's an election. But we'll be doing our best to ensure that our by-law and rule timelines are coordinated with the RPAA implementation timelines. After this work, credit unions, PSPs and FMIs could be eligible to become members of Payments Canada. Once they become a member, our various system by-laws set out who is eligible to access a given system and how. The Bank of Canada also plays a very important role, assessing who can have access to settlement accounts for a given system. Of course, all this depends on the passage of our legislative changes through Parliament and it receiving Royal Ascent, so we're watching that very closely.

Elizabeth Dempsey:
One last question about the by-law Lisa, this is also interesting. What do you take into consideration when drafting such an important piece of policy? This by-law will be the foundation for years to come and it's highly specialized work. What are your biggest considerations?

Lisa Sattler:
It's really just a careful balance of our public policy objectives and that safety, soundness and efficiency of our systems. So of course, we're also mandated to take into account the interest of users, and need to consider the Bank of Canada's oversight expectations for our systems, including fair and open risk-based access policies. Really, we want to offer participants flexible access options. Each system serves a different purpose, so we need to take into consideration how each group will use the various systems and which system might be most relevant to each group. So for example, we anticipate there'll be a high interest in the RTR from PSPs, especially on the exchange portion. FMIs, for example, typically deal with high value payments as well, Lynx is appealing to them. By understanding the needs of these new membership categories, we can create policy that meets their needs and makes it appealing to become a member in Payments Canada.

Elizabeth Dempsey:
Lisa, what an incredible accomplishment for not just Payments Canada, but for the entire payment ecosystem. I'd love to say the pressure is off, but it sounds more like the work is only just beginning. Hopefully we can have you back for another update.

Lisa Sattler:
Of course, Liz, anytime.

Elizabeth Dempsey:
Just before we go, make sure to stay connected to all things payments by visiting our website payments.ca and signing up for our newsletter, The Exchange. And be sure to visit the summit.ca for the latest announcements about The SUMMIT, our annual payment conference happening May 29-31, 2024 in Toronto. I'm Liz Dempsey, thanks for joining us for this episode of The PayPod.