The Bank of Canada today released final supervisory guidance on Safeguarding End-User Funds for PSPs.
Examples provided help clarify: "is this Applicable to my business?"
Yes - If you are a PSP operating in Canada or serving Canadian customers and you hold customer funds (funds at rest) for future withdrawal or transfer. (e.g. if you offer a pre-funding option with funds held for future transfers or withdrawal).
No - Where the transaction instructions are for immediate onward transfer of all funds, even if the funds might be held for a few days as part of processing.
Two options are offered for Safeguarding of End-User Funds, with Option One expected to be more popular, as this type of facility is commonly available from Banks and Trust Companies.
Option 1: using a Trust Account
Establish a legally binding trust.
Appoint a trustee (PSP or third party).
Segregate funds in a dedicated trust account.
Choose a reputable financial institution as the account provider.
Ensure no offsetting of debts against customer funds.
Option 2: using Insurance or Guarantee
Obtain adequate insurance or a guarantee.
Select a reputable, independent provider.
Ensure coverage meets specific regulatory requirements:
Protects against PSP insolvency.
Prioritizes customer claims.
Provides sufficient notice of policy changes.
Additional obligations set out in the final Supervisory Guideline include:
Maintaining accurate records of all funds.
Clearly communicating safeguarding practices to customers.
Implementing a robust framework for safeguarding funds.
Regularly assessing insolvency protection measures.
Undergoing periodic independent reviews.
Ensuring compliance by employees, agents, and third-party providers.
Ethidex offers software and regulatory content to support Regulatory Compliance Management, including for the RPAA. Ethidex also offers consulting and can assist with development of, or changes to, Frameworks, Policies and Compliance Programs.
If you would like to discuss further how we might help, please reach out.
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