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The Retail Payment Activities Act (RPAA) will be fully enforced by September 2025. This means all registered payment service providers (PSPs) in Canada must have a risk management framework by then.
You cannot operate your PSP business if you don’t have a framework in place. Other legal consequences will also follow. To learn more about the need for a risk management framework under the RPAA, continue reading.
Does Your PSP Need A Risk Management Framework Under The RPAA?
Having a risk management framework (RMF) under the RPAA is essential if you’re a registered PSP. You don’t have a choice in determining whether you should implement a RMF for your business.
Any PSP that tries to operate without a risk management framework will face consequences such as:
- Refusal of RPAA registration
- Loss of banking relations due to onboarding rejections
- Regulatory investigations by the Bank of Canada
- Compliance failure risk
Without RPAA registration, you cannot offer payment services legally in Canada. Compliance issues may also lead to business closure by regulatory agencies.
What Is Risk Management Framework Under The RPAA?
A risk management framework is a comprehensive and well-tailored document that outlines how you’ll manage operational risks as a PSP. It should cover:
- Details about the protection of client funds and data
- Business continuity plan
- Measures for cybersecurity and fraud prevention
- How you will assess, vet, and monitor third-party service providers
- Your ways to fulfill regulatory reporting obligations
You will have to disclose all details, such as how data will be stored and encrypted on your online networks. The more comprehensive your RMF is, the easier it will be to maintain compliance with RPAA regulations.
What Is The Purpose Of The Risk Management Framework?
A risk management framework under the RPAA is supposed to help PSPs identify and mitigate operational risks. It’s a custom-tailored policy designed according to your payment model, customer base, size and scale of your business.
The documents allow you to represent yourself as a credible PSP in the Canadian market. A robust program will prevent banking partners from marking you as a red flag.
You can continue your operations without facing sudden audits and investigations with a well-developed RMF.
Why Is It Important To Review A Risk Management Framework?
Many PSPs believe implementing a RMF without ongoing review of the framework is enough. That’s not true. It’s essential to monitor your RMF and make changes to address any issues.
Regulatory policies under the RPAA are constantly evolving, requiring you to update your RMF accordingly. If you don’t keep up with the changes and review your risk management framework, you’ll face serious consequences.
What Happens If You Don’t Have A RMF Or Have An Outdated RMF?
PSPs that fail to implement a robust risk management framework under the RPAA may face consequences like:
- Cancellation Of Operations In Canada
A payment service provider without a risk management framework is not allowed to operate in Canada. This is regardless of whether you’ve completed RPAA registration.
The authorities will cancel your licenses and mark you as a red flag. You’ll have to repeat the RPAA registration process and develop a new RMF to restart your operations.
- Flagging Of Your Business By Banking Partners
Besides regulatory agencies, important entities that review your RMF include banking partners. If these officials notice you don’t have a risk management framework or your policies are outdated, they will:
- Prevent your company from onboarding
- Freeze your accounts if you’ve already signed agreements with them
- Terminate your banking contract after an annual PSP review
Without a banking partner, offering security to customers and managing funds seamlessly isn’t possible.
- Reputational Damage
Having a clean reputation is important for every PSP in Canada. Otherwise:
- Clients will stop trusting you
- Vendors may stop doing business with you
All these things will not only lead to client loss, but also financial losses. Even the smallest regulatory incident can harm your reputation to an extent that you may have to halt business.
- Legal Penalties
The Bank of Canada has implemented solid penalty programs for PSPs in non-compliance with its policies. You may face administrative monetary policies that can range from a few hundred dollars to thousands of dollars.
Your business may also be reported to law enforcement agencies, leading to arrests and lawsuits. Fighting a court battle because of a lack of a risk management framework can lead to irreversible business damage.
Renno Co. & Fintech: Creating Tailored RMFs For PSPs
The best way to create a robust risk management framework under the RPAA is with the help of a fintech law firm. Renno Co. & Fintech offers extensive knowledge of the Retail Payment Activities Act.
We can register your business by completing your application forms and submitting comprehensive compliance program documents. Our lawyers also ensure you don’t miss RPAA registration deadlines.
You can rely on us to build you a robust RMF that aligns with your business’s payment model, scalability prospects, and banking partner expectations.
Build Your Risk Management Framework Now Or Risk Falling Behind
A risk management framework under the RPAA is not only for regulatory agencies, but also for good banking relations. Building a framework is a serious task that requires extensive knowledge of the latest RPAA policies.
You can secure your business by collaborating with a fintech law firm like ours for risk management framework needs. Get in touch with us today to protect your business, clients, and banking relations.
