Before you invest the time and money to submit a registration application under the Retail Payment Activities Act (RPAA) — and potentially risk ending up on the publicly available “refused” list simply because the Bank of Canada determines you’re exempt — read this article. We’ve used our advanced knowledge of the Act to simplify the Bank’s four-step application test.
If your answer is “yes” to all four questions below, you’re required to submit an application to the Bank of Canada (referred to as “the Bank” for the rest of this article) to register as a payment service provider (PSP).
The Bank estimates more than 3,000 companies will be required to register under the RPAA.
Step 1: Are you a payment service provider?
You only have to offer one of five payment functions to be considered a PSP. However, simply because you store a customer’s information for use in future transactions or hold funds for them — two of the five functions — doesn’t mean you’re a PSP. That’s because RPAA limits registration to companies that provide electronic payment services as an integral part of their business.
Another indicator to consider is whether you remit or transfer funds and, as a result, are a registered money services business (MSB). If the answer is “yes,” you may be a PSP (though not all MSBs are PSPs and vice versa). Wondering if you need to register as an MSB? While you’re applying for registration under the RPAA, consider whether you may be required to register as an MSB with, among other regulators, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). We can help you with both registrations.
💡 The simple answer: You’re likely a PSP if you’re involved in any aspect of the electronic payment chain as a primary part of your business model — in other words, your business wouldn’t exist if you didn’t provide those electronic payments.
Step 2: Do you perform retail payment activities?
To see if you meet the criteria for Step 2, consider the following two questions:
First, are you involved in electronic payments? If you’re a cash-only business, we’re done here.
Second, if you’re a crypto business, is fiat currency also involved in your transactions? The RPAA doesn’t apply to businesses that deal exclusively in crypto. But if your crypto business holds a customer’s Canadian dollars so they can buy crypto later, you meet the criteria for Step 2. These crypto scenarios published by the Bank may help you determine if you meet Step 2’s criteria. For more information, please reach out to Matt or Suhuyini.
💡 The simple answer: If any part of your business involves moving fiat currency between people or companies, Step 2 of the criteria may apply. If you’re involved in crypto, don’t assume you’re exempt.
Step 3: Is your place of business in Canada?
For Canadian businesses, answering “yes” or “no” is relatively simple. If you have an office, storefront or employees in Canada, or incorporated or formed your business in Canada, then you have a place of business in Canada.
This answer is less clear for international businesses. A U.S. company with one employee in Canada is considered to have a place of business here. Further, companies who don’t have a place of business in Canada but “direct” services at people or businesses in Canada may still need to register — for example, an international business that sends payments to Canadians. The Bank goes as far as to say that a company that operates in multiple countries and is well known in Canada may need to register, even if it doesn’t directly market to Canadians or otherwise have a place of business in Canada.
💡 The simple answer: When it comes to foreign companies, the Bank’s guidance on place of business is broad. Don’t spin your wheels. If all of the other three steps apply to you, seek trusted legal advice. For more information, please reach out to Matt or Suhuyini.
Step 4: Do none of the Bank’s exemptions apply to you?
The Bank’s guidance includes close to 2,500 words on exemptions — and that doesn’t include the detailed case scenarios. We often get asked about three of them.
The first is the exemption for “designated systems” — payment systems that are exempt because they’re critical to Canada’s economy and already regulated under a different law, such as Interac e-Transfer and VisaNet. This exemption is only for the companies that provide those designated systems: Visa for VisaNet transactions, for example, and Interac for Interac e-Transfers. If you’re a PSP that merely relies on Interac or credit cards for your payments, you’re not considered exempt, here.
The second exemption we’re frequently asked about is agents — those who facilitate payments on behalf of another company for a cut of the fees. The RPAA says agents are exempt so long as the other company is registered as a PSP. But if you’re an agent and offer your own payment services, you’ll still have to register with the Bank for the payment services you offer for yourself.
The third exemption we’re frequently asked about is the exemption for payment functions that are performed in a way that is “incidental” to another service or business activity (which we already discussed briefly in Step 1). To determine whether the incidental exclusion applies to you, it’s important to consider your particular circumstances — for example, the features of your products and services, the relationship you have with customers and other third-party PSPs, your advertising and marketing, and how you earn revenue.
💡 The simple answer: If your business or its activities are already regulated in a way that protects consumers like the RPAA does, you may be exempt. Make sure a particular exemption actually applies to your business or its activities and that you aren’t mistakenly piggybacking on another business’ exemption. If you intend to rely on the incidental exclusion, it may be worth seeking trusted legal advice, given that this exclusion is somewhat subjective and the Bank may not share your view that you are exempt. In all cases, it’s best to be prepared to justify why your business is exempt.
Your next steps
The Bank’s guidance is lengthy and detailed, with highly specific case scenarios. It’s easy for businesses to say, “We’re different from this” and tempting to decide not to apply. But there are potential costs if the Bank determines you should have applied by the Nov. 15, 2024, deadline and you didn’t, including potential business interruption or penalties for non-compliance.
Daily, we advise clients of all sizes on the application of the RPAA and we would be pleased to use our depth of knowledge and experience to provide you with a 20-minute presentation on the RPAA and what to expect after Nov. 16, 2024. Email Matt to schedule yours.
You can also sign up for brief email updates from our team. Receive reminders of deadlines, stay on top of changes to the Bank’s guidance and get helpful tips from Canada’s most experienced RPAA legal team.
Matt Connors was a key member of the Bank of Canada team that created the RPAA and its regulations. With his deep understanding of the Act, Matt is assisting businesses in understanding their registration and compliance responsibilities.
Suhuyini Abudulai is an award-winning champion for Canada’s financial services industry, a prolific author and speaker in the payments and fintech industries, and a go-to for compliance advice related to consumer financial services.