On December 12, 2024, the Bank of Canada (the Bank) published the much-anticipated final Safeguarding End-User Funds Guideline (the Final Safeguarding Guideline) setting out the Bank's expectations for payment service providers (PSPs) that hold funds on behalf of end users under the Retail Payment Activities Act (Canada) and associated regulations (collectively, the RPAA). Under the RPAA, if a PSP holds end user funds, it must safeguard such funds by holding them in trust in a trust account or in an account where such funds are subject to insurance or a guarantee, and such funds must be segregated from all other funds it holds. In addition, PSPs that hold end user funds must establish, implement and maintain a framework with respect to safeguarding such funds.

This blog post is part of our ongoing series regarding RPAA-related developments. Read our earlier blog posts for additional information and commentary on the RPAA.

The Final Safeguarding Guideline replaces the draft Safeguarding End-User Funds Guideline published by the Bank in February 2024 (the Draft Safeguarding Guideline). Following the release of the Draft Safeguarding Guideline, the Bank engaged in consultation with industry stakeholders, and released a summary of the feedback it received along with the Final Safeguarding Guideline (Industry Feedback).

Industry Feedback included a request for the Bank to provide detailed guidance regarding requirements for creating valid trust arrangements and the type of insurance or guarantee products that would be acceptable to meet the Bank's requirements; however, the Final Safeguarding Guideline provides limited additional assistance on these points, and PSPs are directed to consult their legal advisors to assess whether their arrangements meet the RPAA requirements. Nevertheless, what is clear in the Final Safeguarding Guideline is that there is some flexibility; the Bank confirmed that PSPs are not restricted to finding one single solution to safeguard end user funds and can use a combination of the prescribed methods.

Industry Feedback also requested the Bank clarify whether funds reserved for chargebacks will be subject to the safeguarding requirements and voiced concerns regarding the use of indirect arrangements for safeguarding purposes. The Bank did make changes to reflect Industry Feedback on these issues and updated the Final Safeguarding Guideline, as follows:

• PSPs that hold merchants’ funds in reserve earmarked specifically to mitigate chargeback or fraud-related risks for such merchants’ transactions are not considered to be holding end user funds for purposes of the RPAA and thus PSPs do not have to meet the RPAA’s safeguarding requirements with respect to such funds.
• When identifying the appropriate level of insurance or guarantee coverage a PSP needs for its end user funds, a PSP is not expected to maintain certainty of this amount. Instead, the Bank expects the PSP to document the methodology it will use to determine the amount of coverage needed. This shows that the Bank understands that there will be fluctuations in transaction volumes that PSPs may experience, which may make it difficult for some PSPs to determine whether the value of any insurance or guarantee coverage meets the RPAA requirement of being equal to or exceeding the amount of end-user funds in the PSP’s safeguarding account.
• During the consultation period, the Bank identified significant regulatory and operational barriers in cases where PSPs do not directly hold accounts at regulated financial institutions and instead hold their accounts (and store their end users’ funds) at accounts held by other PSPs. The Bank refers to these models as “indirect arrangements” and takes the position that it will not accept indirect arrangements as compliant with the RPAA’s requirements for funds safeguarding, unless, at a minimum, every PSP involved in the indirect arrangement can demonstrate it meets the RPAA’s requirements and objectives, and legal advice supporting such position has been obtained. Accordingly, the Bank now generally expects that a PSP that holds funds on behalf of end users obtain a direct relationship with a safeguarding account provider (e.g., a bank, credit union or another type of prudentially regulated financial institution).

Another notable addition to the Final Safeguarding Guideline was the additional guidance from the Bank regarding disclosures to end users. PSPs will be required to disclose to end users:

1. when end users’ funds are and are not safeguarded, including notifying end users that when they send funds to a PSP along with instructions for transfer, such funds will not be safeguarded; and
2. all situations where end user funds may not be immediately transferred to a safeguarding account upon receipt. Funds that are not placed in a safeguarding account upon receipt must be recorded by the PSP as a shortfall.

The Final Safeguarding Guideline and the related provisions of the RPAA come into effect on September 8, 2025. While this may seem to be in the distant future, the arrangements that PSPs need to have in place, including the required framework, safeguarding accounts, internal processes and procedures, compliant client-facing agreements, and partnership agreements that account for a PSP’s new regulatory requirements, may take a significant amount of time and resources to implement.

Please do not hesitate to reach out to the authors of this post or your legal professional at McCarthy Tetrault LLP for assistance.