Payments Canada by-laws amended for resolution

Summary#

This rule, the By-law Amending Certain By-laws Made Under the Canadian Payments Act, updates several Payments Canada by-laws to reflect changes to bank-resolution rules and to the Bank of Canada’s risk standards for payment systems. It took effect on July 16, 2020 when it was registered and published in the Canada Gazette on August 5, 2020.

What it does#

• Changes to By-law No. 7 — Respecting the Large Value Transfer System:

  • The President of Payments Canada no longer must automatically suspend a participant from the LVTS after a regulator declares it non-viable. Instead, suspension becomes discretionary and requires agreement with the Minister of Finance and the Governor of the Bank of Canada.
  • The President must notify other LVTS participants when a suspension happens.

• Changes to By-law No. 3 — Payment Items and Automated Clearing Settlement System:

  • Removes the direct/group clearer requirement that a participant hold at least 0.5% of ACSS volume.
  • Prevents clearing agents from immediately stopping service to an indirect clearer when the Canada Deposit Insurance Corporation (CDIC) is providing a full financial guarantee.

• Changes to By-law No. 1 — General:

  • If a bridge institution is created under the Canada Deposit Insurance Corporation Act, it is treated as having the rights and obligations of the failed member for clearing and settlement purposes.
  • The Payments Canada Board cannot suspend a member’s rights just because the member is subject to a CDIC resolution order.

• Changes to By-law No. 2 — Finance:

  • A bridge institution is exempted from the rule that normally requires a new member to pay the full annual common services dues in its first year.

Who's affected#

• Banks, credit unions and other financial institutions that are members of Payments Canada, especially:
  • Direct participants in the Large Value Transfer System (LVTS).
  • Direct and group clearers in the Automated Clearing Settlement System (ACSS).
• The Canada Deposit Insurance Corporation (CDIC), the Bank of Canada, and the Office of the Superintendent of Financial Institutions (OSFI) are involved in how suspension and resolution steps are handled.
• Potential new entrants to the ACSS (the government estimates the cost to onboard new direct participants would be shared among existing participants at about $786,500, spread across the 12 existing ACSS direct participants). It is unclear how many new entrants, if any, will apply.

Why it matters#

• These changes aim to reduce the chance that automatic rules would make a bank resolution worse for the payments system. Giving the President of Payments Canada discretion, with input from the Bank of Canada and the Minister of Finance, can help keep large-value payments flowing while a troubled institution is being resolved.
• Removing the 0.5% volume rule makes ACSS access criteria more explicitly risk-based. That could make it easier for some firms to become direct clearers and increase competition or resilience in retail payments.
• The bridge-institution provisions make it clearer that a temporary entity created in a bank failure can keep handling payment obligations without being blocked by by-law technicalities.
• The government says there are no costs to taxpayers from these changes.