RPAA - Operational risk and incident response supervisory guideline - an implementation approach

The Retail Payment Activities Act (RPAA) includes a 62 page Supervisory guideline covering Operational risk and incident reporting expectations. Appendix A provides helpful examples of the types of documentation (mainly Policies and Procedures) that PSPs could establish and maintain as part of their framework.

A key component of implementation is the development and implementation of an Operational risk management framework, achieving:

• Proportionality: Tailoring the complexity of the framework to the size and nature of the PSP's operations.

• Practicality:  Prioritizing the implementation of controls that are easily implemented and monitored.

• Regular Review and Enhancement: Ensuring the ongoing effectiveness of the framework through regular reviews and updates.

The Operational risk management framework can be be based on four key pillars:

1. Proactive Risk Identification:

   1. Mapping Payment Processes: Systematically documenting all payment processes to pinpoint vulnerabilities.

   2. Maintaining a Risk Register: Creating and actively managing a register of identified risks, categorized by type (e.g., fraud, IT, compliance).

   3. Conducting Scenario Analysis: Regularly performing exercises to anticipate potential disruptions and assess their impact.

2. Rigorous Risk Assessment:

   1. Evaluating Impact: Determining the potential financial, reputational, and operational consequences of each risk.

   2. Assessing Likelihood: Estimating the probability of each risk occurring.

   3. Prioritizing Risks: Combining impact and likelihood to prioritize risks using a suitable methodology (e.g., a risk matrix).

3. Effective Risk Mitigation:

   1. Implementing Controls: Designing and implementing controls to minimize or eliminate identified risks.

   2. Monitoring Control Effectiveness: Regularly assessing the performance of implemented controls and making necessary adjustments.

   3. Establishing an Incident Response Plan: Developing a comprehensive plan to effectively manage and recover from operational incidents.

4. Continuous Monitoring and Reporting:

   1. Tracking Key Risk Indicators (KRIs): Monitoring metrics that provide early warnings of escalating risks.

   2. Providing Regular Management Reports: Delivering timely updates to management on the risk profile and the effectiveness of controls.

   3. Conducting Independent Reviews: Commissioning periodic reviews of the framework by an independent party.

This framework explicitly addresses key RPAA requirements, such as:

• Comprehensive Scope: Coverage of all retail payment activities, including those performed by third parties.

• Mandatory Incident Reporting: Inclusion of mandatory notification procedures to the Bank of Canada in the incident response plan.

• Robust Third-Party Risk Management:  Requirements for PSPs to rigorously assess and monitor the operational risks of their third-party service providers.

• Thorough Documentation: Maintenance of comprehensive documentation covering the framework, risk assessments, controls, and incident responses.

If you would like to discuss implementation and assistance you require, please reach out.