Last August, the Bank of Canada added a new role to its portfolio: overseeing the Interac e-Transfer system. The digital-payments network, which handled nearly a billion transactions last year, had become so essential to the Canadian economy that governor Tiff Macklem decided the central bank needed to regulate it.

Now the bank faces a bigger transition. Last month, the federal government introduced legislation that would expand the Bank of Canada’s mandate to include oversight of any technology company that handles retail payments. While the bank has long been responsible for promoting stability in the country’s financial system, the Retail Payment Activities Act would see it regulating a large and diverse group of tech companies—and could place the staid, politically independent institution in contentious territory.

“Regulating fintechs in payments is going to be a more political thing,” said Alex Vronces, executive director of Paytechs of Canada, which lobbies on behalf of tech companies operating in payments. “At the margin, the Bank of Canada will need to shift from being a technocratic authority to being a consultative body. Policy can’t be decided behind closed doors by a handful of bookish economists.”

Canada’s fintech industry has long wanted more regulatory certainty around payments, and the Retail Payment Activities Act is an effort to help the industry grow by giving it clear operating guidelines. Under the act, part of the Liberals’ 2021 budget bill in April, the central bank would regulate tech companies in Canada that process payments, in addition to foreign firms that handle payments on behalf of Canadian consumers. 

That list could include homegrown startups like Wealthsimple, which lets customers send and receive money through its smartphone app, as well as global technology giants like Apple and Facebook, which in recent years have rolled out more products around payments. The firms would be required to comply with a set of requirements that show the companies are managing the risk of handling customers’ funds. 

Still, in a meeting last week with the Standing Senate Committee on Banking, Trade and Commerce, Ron Morrow, an advisor to the governor of the Bank of Canada, told lawmakers that the new responsibility would require some changes in how the bank works. “We see retail-payments supervision as complementary to our existing oversight of large, critical and economically important payment systems,” Morrow said. “Nevertheless, we recognize that retail-payments service providers are very different than the entities we currently oversee, and that this will require a very different supervisory approach.”

Rebecca Spence, a spokesperson for the Bank of Canada, told The Logic the bank has hired new staff to work on the design and implementation of the framework, but would not specify how many, and said it is too early to tell how many more it will have to add. “It is anticipated that there will be a large number of entities captured in scope of the proposed Retail Payment Activities Act, and that payment service providers are diverse in both scale and scope,” Spence said. “This is quite different from our current mandate to oversee financial market infrastructures.”

The companies targeted by the Retail Payment Activities Act have not had a designated regulator. Payments Canada, a non-profit organization that operates the country’s main payments-clearing and -settlement system, is responsible for overseeing transactions among large financial institutions, such as the Bank of Canada, chartered banks, trust and loan companies and credit unions. But Canadian law doesn’t allow tech companies to access the central clearing and settlement system, prompting complaints from some in the fintech industry, who say the regulations put startups in the uncomfortable position of doing business with their competitors.

The requirements under the legislation are simpler than those for full banks, and pave the way for startups to take part in Payments Canada’s new network for real-time payments, expected to launch in 2022, said Pat Meredith, a senior fellow at the Centre for International Governance Innovation, who chaired Canada’s Task Force for the Payments System Review from 2010 to 2012. “Having the Bank of Canada as the Retail Payments Oversight Body will allow fintechs that meet the requirements to connect directly to the new real-time payments system and not have to go through a bank,” Meredith said. “If anything it would reduce unnecessary and unrelated regulation … of fintech players and hopefully increase competition in payments so that Canadian consumers and businesses do not have to bear such a heavy burden.”

Koker Christensen, a lawyer at Fasken and the co-leader of the firm’s financial-services group, said the regulation will require companies to register with the Bank of Canada, as well as submit materials on an ongoing basis to show that they are in compliance with the framework. That could create additional costs for those companies, but many of them would likely have the necessary compliance structures in place, anyway, Christensen said. In last week’s Senate meeting, Morrow, the Bank of Canada advisor, said the legislation ideally wouldn’t create additional hurdles for startups, adding that it should be easy for companies to demonstrate that they are complying with the regulations.

As it stands, the Bank of Canada does not have a substantial working relationship with the fintech industry, Vronces said, but it has held consultations about retail payments with industry stakeholders, convening an Interim Retail Payments Advisory Committee to advise it on issues in the sector. The advisory board consists of members from larger payments firms such as Visa, in addition to fintechs like London-based Wise.

The federal government will still have to work with the provinces on other regulations for payments, which will be rolled out in a separate phase, Vronces said, adding that the different requirements could further complicate what is already a complex regulatory landscape for fintechs.

But the Bank of Canada says that through its previous regulatory work, it has forged relationships with other agencies that oversee payments, which would ease potential coordination problems. “The proposed RPAA recognizes that the federal government and provincial and territorial governments have complementary objectives and powers in this area,” Spence said. “In carrying out this mandate, the bank will work with other authorities to coordinate wherever possible and ensure the effective supervision of payment service providers.”