Payment Clearing and Settlement Act (S.C. 1996, c. 6, Sch.)

Short Title

Marginal note:Short title

1 This Act may be cited as the Payment Clearing and Settlement Act.

Interpretation

Marginal note:Definitions

2 The following definitions apply in this Act.

Bank

Bank means the Bank of Canada. (banque)

bridge clearing house

bridge clearing house means a corporation or company that is designated as a bridge clearing house under subsection 11.13(1). (chambre de compensation-relais)

Canadian participant

Canadian participant means a participant that is incorporated or formed under an enactment of Canada or a province. (participant canadien)

central counter-party

central counter-party means a corporation, association, partnership, agency or other entity in a clearing and settlement system with whom all participant’s payment rights and obligations are netted to produce a single amount owing as between each participant and the central counter-party. (intermédiaire)

clearing and settlement system

clearing and settlement system means a system or arrangement for the clearing or settlement of payment obligations or for the exchange of payment messages for the purpose of clearing or settlement of payment obligations that meets the following conditions:

• (a) there are at least three participants, at least one of which is a Canadian participant and at least one of which has its head office in a jurisdiction other than the jurisdiction where the head office of the clearing house is located;

• (b) the clearing or settlement is wholly or partly in Canadian dollars; and

• (c) except in the case in which the payment obligations arise from derivatives contracts, the settlement is ultimately effected through adjustments to the account or accounts of one or more of the participants at the Bank.

For greater certainty, it includes a system or arrangement for the clearing or settlement of securities transactions, derivatives contracts, foreign exchange transactions or other transactions if the system or arrangement also clears or settles payment obligations arising from those transactions or exchanges payment messages for the purpose of clearing or settlement of such obligations. (système de compensation et de règlement)

clearing house

clearing house means a corporation, association, partnership, agency or other entity that provides clearing, settlement or payment message exchange services for a clearing and settlement system. It includes a securities and derivatives clearing house, as defined in subsection 13.1(3), but does not include a stock exchange or the Bank. (chambre de compensation)

eligible financial contract

eligible financial contract has the same meaning as in subsection 22.1(2) of the Winding-up and Restructuring Act. (contrat financier admissible)

Minister

Minister means the Minister of Finance. (ministre)

oversight information

oversight information has the meaning assigned by the regulations. (renseignements relatifs à la surveillance)

participant

participant means a party to an arrangement that establishes a clearing and settlement system. (établissement participant)

payments system risk

payments system risk means the risk that a disruption to or a failure of a clearing and settlement system could cause a significant adverse effect on economic activity in Canada by

• (a) impairing the ability of individuals, businesses or government entities to make payments, or

• (b) producing a general loss of confidence in the overall Canadian payments system, which includes payment instruments, infrastructure, organizations, market arrangements and legal frameworks that allow for the transfer of monetary value. (risque pour le système de paiement)

receiver

receiver includes a receiver-manager and a sequestrator. (séquestre)

share

share includes

• (a) a conversion or exchange privilege that is convertible at any time into a share; and

• (b) an option or a right to acquire a share or a privilege referred to in paragraph (a). (action)

systemic risk

systemic risk means the risk that the inability of a participant to meet its obligations in a clearing and settlement system as they become due, or a disruption to or a failure of a clearing and settlement system, could, by transmitting financial problems through the system, cause

• (a) other participants in the clearing and settlement system to be unable to meet their obligations as they become due,

• (b) financial institutions in other parts of the Canadian financial system to be unable to meet their obligations as they become due,

• (c) the clearing and settlement system’s clearing house or the clearing house of another clearing and settlement system within the Canadian financial system to be unable to meet its obligations as they become due, or

• (d) an adverse effect on the stability or integrity of the Canadian financial system. (risque systémique)

PART IClearing and Settlement System Regulation

Designated Clearing and Settlement Systems

Marginal note:Application

3 This Part applies in respect of clearing and settlement systems designated under subsection 4(1).

Marginal note:Designation by Governor

• 4 (1) If the Governor of the Bank is of the opinion that a clearing and settlement system could be operated in a manner that poses a systemic risk or payments system risk and the Minister is of the opinion that it is in the public interest to do so, the Governor may designate the clearing and settlement system as a clearing and settlement system that is subject to this Part.

• Marginal note:Revocation

  (2) If the Governor of the Bank is of the opinion that the designated clearing and settlement system could no longer be operated in a manner that poses a systemic risk or payments system risk and the Minister is of the opinion that it is in the public interest to do so, the Governor may revoke the designation.

• Marginal note:Notice

  (3) If a designation is made or revoked, the Governor of the Bank shall, in writing, so inform in advance the clearing and settlement system’s clearing house and shall cause a copy of the designation or revocation, as the case may be, to be published in the Canada Gazette.

Information

Marginal note:Information to be provided to Bank

5 A clearing house shall, in respect of the designated clearing and settlement system, provide the Bank with any information that the Bank may request in writing, at any time and in any form and manner that is specified by the Bank.

Directives

Marginal note:Directive to clearing house

• 6 (1) The Governor of the Bank may issue a directive in writing to a clearing house of a designated clearing and settlement system that requires the clearing house, within any period that may be specified in the directive, to take  — and to have the participants take — any corrective measures that the Governor considers necessary, if the Governor is of the opinion that systemic risk or payments system risk could be inadequately controlled because of

  • (a) the design or operation of the clearing and settlement system;

  • (b) the ownership or control of the clearing and settlement system;

  • (c) aspects of organizational structure or corporate governance of the clearing house that are related to risk management;

  • (d) the management or operation of the clearing house; or

  • (e) actual or anticipated acts or omissions of the clearing house or of a participant.

• Marginal note:Directive to participants

  (2) The Governor of the Bank may issue a directive in writing to a participant that requires the participant, within any period that may be specified in the directive, to take any corrective measures that the Governor considers necessary if the Governor has formed an opinion referred to in subsection (1) that systemic risk or payments system risk could be inadequately controlled and

  • (a) the clearing house fails to comply with a directive that has been issued to it under subsection (1);

  • (b) the designated clearing and settlement system does not have a clearing house located in Canada; or

  • (c) in the opinion of the Governor,

    • (i) the risk could be inadequately controlled because of an actual or anticipated act or omission by a participant, and

    • (ii) the actual or anticipated act or omission is not subject to the by-laws, agreements, rules, procedures, guides or other documentation governing the designated clearing and settlement system.

• Marginal note:Factors to be taken into account

  (2.1) In determining the corrective measures that are necessary, the Governor of the Bank shall take into account the nature, severity and imminence of the risk and any other risk-related factors that the Governor considers appropriate.

• Marginal note:Clarification

  (3) For greater certainty, a directive issued under this section must not be made in respect of

  • (a) the capital adequacy of a participant;

  • (b) the management of a participant’s investments;

  • (c) a participant’s corporate governance;

  • (d) a participant’s relations with customers who are not themselves participants in the designated clearing and settlement system;

  • (e) a participant’s ownership structure; or

  • (f) any other matter that is not directly related to a participant’s participation in the designated clearing and settlement system.

• Marginal note:Directive may apply to statutory system

  (4) Subject to the approval of the Minister, a directive, if it so provides, applies to a designated clearing and settlement system that is established under a statute.

Marginal note:Representations

• 6.1 (1) Before issuing a directive to a clearing house or a participant, the Governor of the Bank shall provide the clearing house or participant, as the case may be, with an opportunity to make representations.

• Marginal note:Exception

  (2) If, in the opinion of the Governor of the Bank, providing the clearing house or participant with an opportunity to make representations would undermine the effectiveness of the directive, the Governor of the Bank may, without providing that opportunity, issue a directive under section 6 to the clearing house or participant that has effect for a period of not more than 15 days and may extend the directive once, in writing, for a further period of not more than 15 days.

Bank Powers

Marginal note:General powers

7 The Bank may do all or any of the following things in relation to a designated clearing and settlement system and its clearing house:

• (a) provide a secured or unsecured guarantee of settlement by participants;

• (b) make liquidity loans to the clearing house and the central counter-party; and

• (c) act as the central counter-party to the participants.