On May 2, 2016, the Bank of Canada designated the Automated
Clearing and Settlement System (ACSS) operated by
the Canadian Payments Association as a system that has the
potential to pose payment system risk (a Prominent Payment
System). This designation means that the ACCS will now be
overseen by the Bank of Canada in accordance with the provisions of
the Payment Clearing and Settlement Act (Canada).
The ACSS is the system through which the majority of payment
items in Canada (including pre-authorized debits, direct deposits,
Interac debits and e-transfers, and cheques) are cleared and
settled. The ACSS tracks the volume and value of payment
items exchanged between CPA members (Canadian financial
institutions) to determine the balances due to and from each CPA
member that acts as a direct clearer. The ACSS Rules and Standards,
which are established by the CPA, detail the procedures that apply
to the exchange, clearing and settlement of payment items.
The CPA operates another major payment system, the Large Value
Transfer System (LVTS). LVTS is an electronic wire system for
settling large value Canadian dollar payments between participating
financial institutions. Although the majority of payment
items in Canada are cleared and settled through the ACSS, most of
those payment items are for relatively small amounts. The majority
of the total value of payments in Canada is cleared and settled
through the LVTS. In 2012, the LVTS was designated as
systemically important and as a result it is already subject to
oversight by the Bank of Canada.
Effect of Designation
The Bank of Canada has published Risk-Management Standards for Prominent Payment
Systems, which reflect the Bank of Canada's expectations in
connection with the design and operation of a Prominent Payment
System. These standards now apply to the ACSS by virtue of its
designation as a Prominent Payment System. We understand that the
CPA will address many of these risk-management standards as part of
its current modernization initiative. The CPA has indicated that it
will collaborate with its members to satisfy the new standards.
The primary legal effect of designation of the ACSS as a
Prominent Payment System is that the Bank of Canada may now issue a
directive to the CPA or to any participant in the ACSS to take
corrective measures that the Bank of Canada considers necessary to
control systemic or payment system risk.
Designation of the ACSS as a Prominent Payment System brings
with it the possibility that financial institutions (particularly
those that act as CPA Direct Clearers and Group Clearers) could be
subject to directives issued by the Bank of Canada if the Governor
of the Bank of Canada is of the opinion that systemic risk or
payment system risk is not adequately controlled. Although the
power of the Bank of Canada to issue directives is fairly
open-ended, the Bank of Canada is not permitted to issue directives
to a participant (CPA member) in connection with matters that are
not directly related to the participant's participation in the
ACSS. For example, the Bank of Canada may not issue a directive in
respect of the capital adequacy or corporate governance of a
The designation of the ACSS as a Prominent Payment System allows
the Bank of Canada to more actively monitor the CPA's
modernization initiative and the changes to the ACSS that arise as
part of this initiative. It also places the ACSS within the same
regulatory regime that would apply to any future competing payment
system, should any emerge, provided that the Bank of Canada
determines that any such competing payment system also poses
payment system risk.
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