Figure 1: Conceptual framework for payments oversight - Text Version
Systemically Important Systems
As disruption or failure in a systemically important system has the potential to pose the greatest risks to Canadian financial stability and economic activity, safety and soundness is emphasized. The Large Value Transfer System (LVTS), which clears and settles high-value, time-sensitive wholesale payments (e.g., bank-to-bank transfers), has been designated as a systemically important system and is overseen by the Bank of Canada under the Payment Clearing and Settlement Act. The Department of Finance also has a role in the regulation of systemically important systems owned and operated by Payments Canada.
Prominent Payment Systems
A disruption or failure in a prominent payment system could pose risks to Canadian economic activity and affect general confidence in the payments system. The Automated Clearing Settlement System (ACSS), which clears and settles a high volume of retail payments (e.g., cheques, direct deposits), has been designated as a prominent payment systems and is overseen by the Bank of Canada under the Payment Clearing and Settlement Act. The Department of Finance also has a role in the regulation of prominent payments systems owned and operated by Payments Canada.
Retail payment services, such as mobile wallets and the credit and debit card networks, are used to process lower transaction values. Consumers and businesses rely on such services for their day-to-day transactions. Because of the availability of substitutes, a shock or disruption in a single service would have a limited impact on the economy. User interests therefore receive a greater emphasis than with systemically important and prominent payment systems.
Moving from the right to left on the continuum, the relative importance of the risks associated with a system changes from those related to user protection to risks of a potentially systemic nature. The balance of public policy objectives also changes accordingly. For instance, payment systems located to the right on the continuum would include smaller value, substitutable systems used to process retail payments where risks are primarily to consumer protection. At this end of the spectrum, the Government would emphasize the public policy objectives of users' interests and efficiency. Moving towards the left along the continuum, the severity of risks would increase, with potential impacts on the economy. At the far left are systemically important systems, which include the Large Value Transfer System. Safety and soundness would therefore be emphasized. The public policy principle of efficiency would apply across the spectrum.