On October 8, 2016, Payments Canada announced a high-level, multi-year, multi-phase plan to modernize Canada’s payment systems (the press release and related documents can be accessed at www.payments.ca). Payments Canada has stated that a detailed multi-year plan for various initiatives will be developed following additional research, industry consultation, requirements gathering and assessment.

What changes are expected?

Payments Canada has highlighted the following changes that will be implemented as part of this initiative:

  • Changes will be made to existing payment systems to help financial institutions exchange payments faster and more frequently, giving individuals and businesses more immediate access to funds.
  • Real-time payment capability (i.e., Real-Time Rail, or RTR) for consumer and business payments will be developed. Payments Canada will be the operator of RTR but may not necessarily be the service provider. RTR is expected to result in faster and more convenient payments and money transfers, while enabling new and modern ways for customers to pay.
  • The global messaging standard ISO 20022 will be implemented. This change is expected to make electronic payments more accommodating and convenient for businesses while supporting the move away from paper-based invoicing and cheques.
  • A new core clearing and settlement system will be implemented and operated by Payments Canada. This system will replace the current Large Value Transfer System and the Automated Clearing Settlement System. This new system is intended to meet international standards for managing risk in both high value and retail payments.
  • The legal framework underpinning Canada's payment clearing and settlement systems will be modernized to facilitate these changes and support future innovation and improvements.

What is the purpose of these changes?

These changes are intended to modernize the Canadian payment systems and close the gaps (and needs) identified in Payments Canada’s previously released document titled Modernizing Canadian Payments: A Vision for the Canadian Payments Ecosystem (April 2016) (the Vision Document).

The Vision Document identified the following eight gaps and needs relating to payments:

  • fast payment options (e.g., a parent forgets to send a cheque for a class trip, but is able to quickly send funds so his or her child can confirm their spot before the deadline)
  • data-rich payments (e.g., a company receives a payment that automatically reconciles in its accounting system against the invoice that was paid)
  • transaction transparency (e.g., a new homeowner is notified that their mortgage funds have been deposited and the keys officially belong to them)
  • easier payments (e.g., a shopper returns an item to a clothing retailer, who easily provides a credit using only the shopper’s email address, without requiring bank account information)
  • cross-border convenience (e.g., a Canadian with a condo in the Sunbelt finds it is much simpler to pay their property taxes in the U.S.)
  • activity-based oversight (e.g., whether using the latest app or a cheque, Canadians know their payments are safe and private)
  • open and risk-based access (e.g., a startup enters the payments ecosystems, providing a valuable new payment service to Canadian consumers and small businesses)
  • platform for innovation (e.g., a financial institution leverages the payment system to create a new and unique mobile payment app)

What is the timeframe for these changes?

Payments Canada has indicated that these changes will be implemented over the next four-to-five years, with certain enhancements in place as early as 2017.

What are the legal implications?

Not enough details are available at this stage to assess the impact of these planned changes on the legal rights and obligations of various participants in Canada’s payment systems. However, as mentioned above, it is expected that the various rules and regulations relating to Canada’s payment systems would need to be amended or replaced to facilitate these changes.