The financial landscape of Canada is continuously evolving with new policies aimed at enhancing the credibility and security of Payment Service Providers (PSPs) and Money Service Businesses (MSBs).
With the Retail Payment Activities Act (RPAA) PSPs have a higher regulatory burden, which results in a safer operational environment. However, that is only true if PSPs and MSBs maintain RPAA compliance requirements such as annual reporting under the RPAA.
Let’s dive below to learn more about annual reporting obligations under the RPAA.
Bank of Canada Reporting Guidelines
The RPAA has been developed by the Bank of Canada to supervise PSPs and retail payments. One of its goals is to strengthen the security of retail financial transactions and minimise the potential of illegal, high-risk business operations in the payment sector.
Various rules and regulations under the RPAA make it possible for the authorities to oversee PSPs, ensuring clients are handled with a high degree of diligence. The RPAA has also made PSPs and MSBs more diligent about annual reporting, handling transaction data, and more.
A Closer Look at Annual Reporting Under the RPAA
All registered PSPs must perform annual reporting under the RPAA. These reports must contain specific information according to the Bank of Canada requirements.
Here are the things that a PSP must cover for satisfactory annual reporting:
1. Operational Activities
Every PSP needs to detail their operational activities for annual reporting under the RPAA. The activities for which information must be in the report include:
â—ŹÂ Summary of transactions the PSP has processed in the annual reporting year
â—ŹÂ Types of payment services offered by PSPs and MSBs such as electronic payments
â—ŹÂ Volumes of transactions completed by the PSP
â—ŹÂ Value of end-user funds the entity has handled over the year
2. Client Fund Safeguarding Framework
PSPs are required to safeguard end-user funds and handle sensitive data with utmost security. If they fail to meet RPAA requirements, they will have to face the consequences of non-compliance which can include fees, debanking and operation seizure.
This is why details of the client fund safeguarding framework must be covered in annual reporting under the RPAA. The entity must highlight the following things in their report:
â—ŹÂ The methods are used to protect funds and data
â—ŹÂ Information of PSP system the entity is using
â—ŹÂ Fund safeguarding policies implemented by PSPs and MSBs
3. Risk Management and Compliance
Every business has specific risk management policies and frameworks to avoid loss of funds during unforeseen incidents. The RPAA also requires PSPs to develop risk management plans to ensure RPAA compliance.
These plans must receive approval from the Bank of Canada. This is why annual reporting must cover information on risk management within compliance such as:
â—ŹÂ The methods used to protect client funds and data
â—ŹÂ Fund safeguarding policies implemented by PSPs and MSBs
4. Significant Changes
The RPAA thoroughly covers various aspects of the payment lifecycle aspects to ensure a stable environment for PSPs and end-users. Any changes by an entity are overseen by the relevant Bank of Canada authorities to ensure they’re RPAA-compliant.
If a PSP is bringing about a change in their policies, they must detail those changes in their annual report. Once they receive approval, the service provider can implement the new policies.
Importance of Annual Reporting Under the RPAA
Let’s look at the reasons why annual reporting under the RPAA is necessary and even beneficial to PSPs:
1. Ensures Transparency
Annual reports ensure transparency from PSPs regarding their transactions. It reduces the chances of a service provider engaging in illegal or high-risk operational activities. Diligent reporting requirements also make it too difficult for PSPs to hide any discrepant activities they are performing using their business as a cover.
2. Helps Maintain RPAA Compliance
RPAA is a detailed act with many requirements that PSPs and MSBs must always adhere to. Of course, it can be difficult to keep up with new policies that are introduced under the RPAA. Annual reporting offers a method for PSPs to know whether their policies and payment services methods are following RPAA compliance on a regular basis.
3. Strengthens Consumer Protection
Annual reporting under the RPAA also improves consumer protection by ensuring PSPs are taking adequate methods to safeguard client funds. Relevant officers check the reports to see whether a PSP’s safeguarding framework is secure enough. If they’re not, the service provider will have to develop a new plan which offers heightened security to consumers.
How to Prepare for Annual Reporting Under the RPAA: Key Steps for PSPs
Preparing for annual reporting is a straightforward exercise but one that requires diligence. Below are the key steps you must follow:
1. Understand RPAA Requirements
Knowing the RPAA requirements will help you align your frameworks according to the relevant objectives and regulations. You can visit the Bank of Canada website to check if there have been any updates to the RPAA policies to ensure compliance.
2. Use Technology for Data Compilation
Leveraging technology is a great idea to prepare for annual reporting under the RPAA. Internal control methods can help you compile data while reducing human error and collecting data systematically.
3. Consult a Legal Expert
Once your annual report is complete, you may want to consult an expert to ensure your report aligns with the requirements under the RPAA. Having an expert’s advice can be a beneficial layer of insulation between your company and non-compliance.
4. Revise Anything That Requires Changes
After meeting with legal experts, they will help you revise anything that would not be approved by the Bank of Canada. You must follow the advice of your hired legal and compliance expert to ensure RPAA compliance and an annual report that is acceptable to the Bank of Canada.
The Role of the Bank Of Canada in Annual Reporting
The Bank of Canada plays an important role in overseeing annual reporting under RPAA. It reviews submissions to ensure PSP compliance, identifies systemic risks, and publishes aggregate data to inform the public about payment system trends.
Additionally, the Bank of Canada provides guidance to PSPs on preparing reports, clarifies regulatory expectations, and enforces compliance through consequences when necessary.
Consequences of Non-Compliance
Any PSP that is non-compliant with RPAA policies must face consequences in the form of:
â—ŹÂ Financial penalties
â—ŹÂ Operational bans or restrictions
â—ŹÂ Revoking of RPAA registration
Challenges and Practices PSPs Must Follow for Annual Reporting Under the RPAA
Here are some challenges that you may face as a PSP during annual reporting under the RPAA and how to overcome them:
1. Data Accuracy
Maintaining data accuracy is difficult for various PSPs because compiling and ensuring data is error-free is a big task. However, the problem is easily resolved by developing a centralized system for data management.
2. Evolving Compliance Standards
RPAA compliance standards are constantly evolving which is why sometimes specific rules may be missed during annual reporting. Keeping up with Bank of Canada regulations can help you stay compliant at all times.
3. Cybersecurity Risks
Handling client data with high security may be difficult for PSPs because of cybersecurity risks. This is why you must develop a robust technological infrastructure for data maintenance to ensure your end-users don’t suffer due to cyber-attacks or data breaches.
Connect With Renno & Co. Fintech for Annual Reporting Under the RPAA
New reports have to be developed every year to ensure RPAA compliance and introduce new policies. If you require a legal expert to help you understand RPAA, connect with us now.
