On May 25, 2018, the Department of Finance (Department) released, for consultation, its review of the Canadian Payments Act (Review).1 This Review was anticipated in the 2018 Budget, and represents, along with the Retail Payments Oversight Framework, another important step towards payment modernization in Canada.

The Review

The Review is, in a sense, looking both backwards and into the future. The first part of the Review seeks commentary on the 2015 amendments to the Canadian Payments Act, which amended Payments Canada's governance structure in a variety of ways. Perhaps most importantly, the 2015 amendments ushered in an independent Board of Directors and established the Member Advisory Council (MAC) as a complement to the existing Stakeholder Advisory Council (SAC). It was hoped that the MAC would provide an effective vehicle for members' considerations, concerns and opinions in light of the shift to an independent Board.

The Department's first questions solicit feedback on whether these 2015 amendments better enable Payments Canada to achieve its public policy mandate, which is to promote the efficiency, safety and soundness of its clearing and settlement systems, while taking into account the interests of users. The Department also encourages general recommendations for improving Payments Canada's governance structure, with a view to help the organization carry out its mandate and serve its public policy objectives.

In a series of forward-looking proposals, the bulk of the Review focusses on Payments Canada's membership structure. Over time, Payments Canada has evolved substantially from its beginnings as a system operated by the Canadian Bankers' Association2 and its membership base has expanded to reflect that growth. Historically, membership eligibility reflected the high degree of regulatory oversight that both mandatory and eligible members have faced, particularly with respect to liquidity and capital requirements; access to liquidity support; and both business practice and governance requirements. Today, membership includes banks and authorized foreign banks as mandatory members, and credit union centrals, life insurance companies and securities dealers as eligible members.3 Membership alone does not grant an entity "carte blanche" access to the organization's payment system; Payments Canada and the Bank of Canada have outlined other requirements an entity must meet to exchange, clear and/or settle payment items.

The Review is proposing to broaden membership, with a goal to support open, risk-based access to the three-payment systems Payments Canada will operate:

  1. Real-Time Rail (RTR);
  2. Settlement Optimization Engine (SOE), which is the replacement for today's Automated Clearing and Settlement System - ACSS);  and
  3. Lynx, which is the replacement for today's Large Value Transfer System (LVTS).

"Risk-based access" means the more impactful the disruption of a given system would be to the financial system and economy, the more critical safety and soundness considerations are to assessing the breadth of access to that system. For less-impactful systems—the SOE and the RTR—broader access and participation could be considered, with a goal to be as open as possible given the risks inherent in the disruption of a particular system. Following this type of framework, access to Lynx would be most restricted, with access to the SOE and RTR being progressively broader. 

As the RTR is proposed to have the broadest potential access, the Review focuses primarily on access and membership issues related to that system. The Review is proposing a new "associate membership" class, which would grant membership eligibility to non-traditional Payment Service Providers (PSPs) that are regulated under the proposed retail oversight framework. Associate membership would not allow for participation in either the LVTS or Lynx, and this class of members would be "separate and distinct from members, with a separate set of rights and obligations ..." However, associate members would be permitted to participate in the RTR in certain circumstances.

The Review is seeking comments regarding the concept of an associate membership class, and whether registration and regulation under the proposed retail oversight framework should be a precondition for such membership. As well, the Review has left open quite a few issues, including potential funding models that incorporate associate members, liability considerations for Payments Canada given broader access to certain of its systems, and the appropriate voting structure for this new membership class. The Department is also accepting comments regarding Payments Canada's governance structure insofar as it relates to appropriately incorporating associate members.

With respect to the SOE, the Department has noted the replacement of a critical system—the ACSS—which was brought under formal oversight of the Bank of Canada in 2016 when it was designated a "prominent system". Because of this designation, "open, risk-based access" to the ACSS/SOE cannot be as broad as access to the RTR. With the SOE, Payments Canada proposes to separate participation in payment exchange from clearing and settlement functions. This "decoupling" could enable broader access to the exchange function, while maintaining relatively limited access to clearing and settlement. While associate membership is also being considered with respect to the SOE, the Department has noted that Payments Canada plans to consult on its access framework for SOE participation. Risk-based participation requirements will follow.

With respect to Lynx, one of Canada's systemically important and prominent payment systems, the Department is asking for feedback on whether other systemically-important Financial Market Infrastructures (FMIs) may directly access Lynx, and what type of membership would be appropriate. Those systems include entities like CDSX, which settles certain securities, and CLS Bank, which settles foreign exchange transactions. The Bank of England recently broadened direct access to its Real-Time-Gross-Settlement system (the equivalent to Canada's LVTS or Lynx) to include non-bank PSPs that are e-money or payment institutions. The Department's proposal, while not identical, is in a similar vein.

Next steps

The Department is accepting comments until July 24, 2018. Following close of the commentary period, the Government will produce a report based on stakeholder feedback that will be tabled in both houses of Parliament.


1. For the full text of the Review, see

2. J.F. Dingle, Planning and Evolution: The Story of the Canadian Payments Association, 1980-2002.

3 . Insurance companies and securities dealers were included for membership after 2001 amendments to the Canadian Payments Act. However, that expansion has not proven particularly popular, with only one securities dealer member today.

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