Bank of Canada executive director: No ‘blanket supervisory approach’ on digital payment providers

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The Bank of Canada has been saddled with the task of “supervising payment service providers (PSPs)” under the Retail Payment Activities Act (RPAA).

Since it assumed the role, there have been whispers over the kind of regulatory regime imposed on the industry, but the bank says it will adopt a “flexible, risk-based approach.” The central bank noted that it would work with the federal government to establish a proper regulatory framework for operators.

“We’re not going to use a blanket supervisory approach to the task at hand,” said Ron Morrow, the bank’s executive director of Retail Payments Supervision. “We will take a risk-based approach that will focus on end-user impacts and the efficiency of payment services.”

The Bank of Canada is in talks with legislators to create a comprehensive digital payment law to assist the central bank in discharging its new functions, Reuters reported. It is expected that when the rules come into force, over 2,500 firms will be under the direct control of the central bank.

While the exact details of the rules have not been made public, Morrow’s speech notes that the bank’s regulatory oversight will be decided on the size of the risk that payment service providers give to consumers and the industry. When the rules take effect, payment service providers will be mandated to register their operations with the Bank of Canada before the end of 2024. Failing to comply with the rules could see firms slammed with a fine of up to C$10 million ($7.3 million).

“By ensuring these key risks are well managed, we will further build and maintain Canadians’ confidence that mo’ ways of paying do not, in fact, create mo’ problems,” Morrow said.

Central banks controlling the digital asset ecosystem

In some jurisdictions, central banks regulate the local virtual assets ecosystem, and more often than not, the regulators’ stance toward the industry is hostile.

The Monetary Authority of Singapore (MAS) is one jurisdiction with a central bank regulating digital currencies. MAS has publicly warned the public of the dangers of investing in the asset class, saying that the volatility poses a significant risk to citizens.

In 2021, the Nigerian central bank precluded banks and other financial institutions from facilitating transactions with operators of digital asset operators. Another key indicator is that these central banks are often pining for establishing central bank digital currency (CBDC) as they hope to stir people away from virtual currencies.

Perhaps, the Bank of Canada may buck the trend and operate as a central bank with a friendly disposition toward digital assets.

Note from the editor: This article has been updated.

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