MONTREAL — In his work at the Bank of Canada over nearly three decades, Ron Morrow has overseen the country’s largest financial institutions, helping ensure the stability of the system. His latest assignment is a little different: leading the central bank’s efforts to regulate tech companies and other businesses that handle small payments directly for consumers.

It’s a new role for the Bank of Canada, but one in which it is investing deeply in preparation for the launch of the country’s new retail payments system, now expected for 2023. To oversee the effort, the bank is anticipating a cost of between $35 million and $40 million per year for retail payments supervision, including a roughly five per cent increase of its headcount. 

Reporting directly to Bank of Canada governor Tiff Macklem, Morrow’s appointment last summer to oversee the initiative was yet another signal of the central bank’s investment in the role, which it now counts among its core functions, alongside other responsibilities like setting monetary policy, overseeing the financial system and issuing currency.

“Every day, Canadians place their trust in payment service providers,” Morrow told The Logic in an interview last month. “Our job is to ensure that PSPs warrant this trust, and that Canadians can be confident that funds are going to be protected, risks are going to be well managed.”

The central bank’s new mandate stems from legislation introduced in the most recent federal budget in April. The Retail Payment Activities Act will task the organization with overseeing users of the upcoming payments system, the Real-Time Rail, approving participants and making sure they take precautions to protect customers’ funds.

While most companies that register will be handling low-value payments, there will be a lot more of them than the bank is used to overseeing: roughly 2,000 when the system goes live, by its own estimate. That could pose a risk to the financial system in the absence of safeguards to protect the funds.

As the bank prepares for the system to be put in place, one of its first tasks has been working with these companies to figure out how to regulate them. That process ramped up last fall, as the bank appointed a formal advisory committee, chaired by Morrow, and began considering how to pay for the additional personnel needed for the oversight.

The bank expects to hire roughly 150 employees to work on retail payments supervision, according to a November discussion paper from its advisory committee on retail payments. That figure includes personnel in divisions aside from the new retail payments department, where additional legal, technological communications staff will be needed to support the new initiative, Morrow said.

Beyond an increase in staffing, there’s also a more subtle change underway at the bank. As an institution with a history of setting rules for the financial system but limited experience in actually enforcing them, the shift to regulator will require a different mindset among its employees, Morrow told The Logic.

“It would be naive to think that we won’t have to one day use our enforcement tools to incent compliance with the regime, and that requires a different mindset,” said Morrow. “We need a kind of a supervisory culture here, one that we haven’t had in the past and that we’re in the process of developing.”

Already, the new retail-payments supervision department has recruited staff from a variety of federal and provincial agencies. They include employees from the Financial Consumer Agency of Canada and the Financial Transactions and Reports Analysis Centre, as well as from Finance Canada and provincial securities regulators. Some of the bank’s new employees have also worked for regulatory bodies abroad, including the U.K.’s Financial Conduct Authority.

Carol Brigham, a former banker who held senior positions overseeing markets and financial stability at the Bank of Canada, will run the retail payments supervision department. Brigham was most recently managing director of the banking and payments department, a post she assumed in 2018, according to her official bio.

The new regulatory function could also place the bank in more political territory, as it will be tasked with enforcing rules set by Parliament. That echoes concerns among some that the government has been too involved in setting the Bank of Canada’s agenda—for instance, in its mandate renewal process, which ended this month.

The bank eventually expects to recoup the costs through a combination of one-time charges for accreditation and ongoing assessment fees. But as the supervisory framework is being developed, the Department of Finance has been covering the additional costs for the bank, Morrow said. The Department of Finance didn’t comment.

Discussions about how users of the Real-Time Rail will split the costs tend to raise issues of fairness, given that fintechs and other startups have less money to spend on legal expenses. But a summary of the advisory committee’s November meeting shows that initial costs are likely to be relatively low, at just $2,500 per prospective user.

So far, people involved with the fintech sector have been pleased with the bank’s approach to working with the industry, with some citing Morrow’s attention to detail and his hands-on style.

“He has jumped in with both feet and engaged at a level of consultation that I’ve never seen before in Canada,” said Laurence Cooke, CEO of Nanopay, who serves on the bank’s Retail Payments Advisory Committee. “It’s not like he’s handed off all the thinking to his minions. He’s on every call.”