On August 18, 2021, the Canadian Payments Association By-law No. 9 - Lynx  (the "By-law"), made under the Canadian Payments Act, was published in the Canada Gazette.

This By-law provides the legal foundation for Lynx - the new electronic funds transfer system that is owned and operated by the Canadian Payments Association ("Payments Canada"). Lynx is replacing Canada's existing Large Value Transfer System, which has been in place since 1999. Lynx has been designated by the Bank of Canada (the "Bank") as a systemically important payment system under the Payment Clearing and Settlement Act as announced by the Bank on September 1, 2021. 

Along with the introduction of Lynx is a new financial risk model, which is that payments will only be sent and settled when sufficient funds are available; a defaulter-pay model intended to reduce systemic risk. Under the new model, payments will be settled immediately when sent, as opposed to at the end of each day. The credit risk exposure in Lynx will be covered by the participating financial institutions, instead of a guarantee from the Bank. This financial risk model is in contrast to the current Large Value Transfer System, which provides for a combination of survivor-pay and defaulter-pay loss-sharing arrangements supported by collateral.

Lynx complies with international risk standards, and is an important part of Payments Canada's payments modernization initiative.

The new By-law sets out the key rights and responsibilities of Payments Canada, the Bank and the participating member financial institutions that will send and receive payments for settlement in Lynx.

Some components of the By-law include:

  1. Establishing eligibility criteria: participants are required to: (i) be members of Payments Canada; (ii) have a settlement account at the Bank of Canada; and (iii) meet prescribed technical requirements.
  2. Connecting to Lynx: participants must be provided with access to Lynx every business day, including access to all settlement mechanisms, and all participants must connect to Lynx every business day unless technical difficulties prevent them from doing so. 
  3. Collateral: each participant (other than the Bank) must pledge collateral and the Bank must, before the beginning of the payments processing cycle every business day, assess the value of that collateral. Before the beginning of the payments processing cycle every business day, participants must allocate all or part of the assessed value of their pledged collateral as security for their intraday loan.

The By-law also sets out rules regarding suspension, revocation and reinstatement of participants' permission to participate in Lynx.

Most sections of the By-law came into force on August 28, 2021, with the exception of the sections related to the repeal of By-law No. 7 Respecting the Large Value Transfer System, which come into force on June 1, 2022.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.