Key takeaways
- Section 20(1) of the Retail Payment Activities Act lets a PSP hold end-user funds in trust in a trust account used for no other purpose, or in an account used for no other purpose with insurance or a guarantee at least equal to the balance.
- A trust needs a valid express trust under Canadian law, confirmed by legal advice, and an agreement with the account provider stating the funds are held in trust; Quebec has its own civil law routes.
- Insurance or a guarantee must come from an unaffiliated eligible provider, keep proceeds outside the PSP's estate, pay out as soon as feasible after an insolvency trigger and survive insolvency.
- The Bank of Canada must get at least 30 days' notice before insurance or a guarantee is cancelled or terminated.
- PSPs may combine methods and providers, and both methods need an account at an eligible institution that cannot set off against the funds.
What are the key facts on RPAA safeguarding methods?
The RPAA gives PSPs two practical ways to protect end-user funds, and both rely on a dedicated account at an eligible institution.
| Item | Position |
|---|---|
| Rule | RPAA section 20; RPAR sections 13 and 14 |
| Regulator | Bank of Canada |
| Applies to | PSPs that hold end-user funds |
| In force | 8 September 2025 |
| Notice | At least 30 days before insurance or a guarantee is cancelled or terminated |
| Last checked | 11 October 2026, against the RPAA, the RPAR and Bank of Canada guidance |
What does section 20 of the RPAA allow?
A trust account, a prescribed account or manner, or a separate account with insurance or a guarantee.
Section 20(1) of the RPAA requires a PSP that holds end-user funds, until they are withdrawn or transferred, to do one of three things: (a) hold them in trust in a trust account not used for any other purpose; (b) hold them in a prescribed account or manner and take any prescribed measures; or (c) hold them in an account not used for any other purpose and hold insurance or a guarantee for an amount equal to or greater than the amount held in that account. In practice, the Bank of Canada's guidance focuses on the trust and insurance or guarantee methods. Section 20(3) prevents the institution maintaining the account from asserting any right of set-off or compensation over the funds, and section 20(2) disapplies the requirement for funds held in a province by a PSP that takes deposits insured or guaranteed under that province's law, to the extent of that cover.
What does the trust method require?
A valid express trust over a dedicated account at an eligible institution, documented with the account provider.
The Bank's guideline expects the PSP to obtain legal advice confirming that a valid express trust exists under Canadian law, and to have a legal agreement with the account provider stating that the funds are held in trust for end users. The account must be used for no other purpose, so fees, revenue and operating payments must run through other accounts. In Quebec, the arrangement must qualify as a trust under the Civil Code of Québec or use the simple administration regime, in which the PSP administers the funds as an administrator appointed by the beneficiary. Our guide to the RPAA safeguarding framework covers the legal risk analysis the framework must contain.
What does the insurance or guarantee method require?
A separate account and cover from an unaffiliated eligible provider that pays end users if the PSP becomes insolvent.
Section 14 of the RPAR requires the insurer or guarantor to be an entity listed in paragraphs 9(a) to (h) of the RPAA, or a comparably regulated foreign financial institution, not affiliated with the PSP. The PSP must ensure that the proceeds are not part of its estate, are payable to end users as soon as feasible after a trigger event, and that the cover survives insolvency, creditor compromises and restructuring. It must notify the Bank at least 30 days before any cancellation or termination.
| Trigger event under section 14(3) | When cover responds |
|---|---|
| The PSP starts an insolvency proceeding against itself | On the proceeding |
| The PSP consents to an insolvency proceeding brought against it | On consent |
| Another party brings an insolvency proceeding | 30 days later, unless it is discontinued or dismissed in that time |
How do the two methods compare?
A trust protects the funds themselves; insurance protects their value through a third party's promise to pay. The right choice depends on balance volatility, legal set-up cost and the provinces served.
| Point | Trust account | Separate account with insurance or guarantee |
|---|---|---|
| What protects end users | Funds held in trust, outside the PSP's estate | Funds in a dedicated account, plus proceeds of cover |
| Legal work | Legal advice on a valid express trust; Quebec civil law analysis | Policy or guarantee terms meeting section 14 |
| Amount protected | Whatever is in the trust account | Up to the cover amount, which must be at least the balance |
| Main operational risk | Funds received outside the trust account | Balance rising above cover on peak days |
| Third-party dependency | Account provider | Account provider and insurer or guarantor |
| Notices to the Bank | Account changes | Account changes and 30 days before cancellation of cover |
The Bank allows PSPs to combine methods, for example splitting funds between a trust account and an insured account, or using more than one provider. Our guide to calculating end-user funds shows how a combined position is reconciled each day.
Which institutions can hold the account?
Eligible Canadian institutions listed in the Act, or comparably regulated foreign financial institutions.
Section 13 of the RPAR applies to accounts under both paragraph 20(1)(a) and paragraph 20(1)(c): the account must be provided by an entity in paragraphs 9(a) to (d) or (f) to (h) of the RPAA, or by a foreign financial institution subject to comparable standards on capital, liquidity, governance, supervision and risk management. The Bank also expects a direct relationship with the account provider, and the provider's written acknowledgement that it has no interest in or recourse against the funds for debts of the PSP.
How does each method work if the PSP fails?
A trust keeps the funds themselves outside the estate; insurance or a guarantee pays end users from a third party.
Under the trust method, the funds in the trust account belong in equity to the end users, so an insolvency administrator should return them rather than distribute them to creditors. The quality of that protection depends on the trust being valid and the account holding only end-user funds; mixing in the PSP's own money invites a challenge. Under the insurance or guarantee method, the dedicated account still holds the funds, and the cover adds a second source: proceeds payable to end users, outside the PSP's estate, as soon as feasible after a trigger event. Either way, the framework's insolvency procedure under section 15(2)(c) of the RPAR must explain who contacts end users, how the ledger is corrected and how funds are returned.
What goes wrong with each method?
Trust arrangements fail on commingling and documentation; insurance fails on cover that does not keep pace.
- Trust: fees or operating payments paid from the trust account, so it is no longer used for no other purpose.
- Trust: no written agreement with the account provider confirming the funds are held in trust.
- Trust: Quebec end users served without analysis of the civil law trust or simple administration route.
- Insurance: cover sized to average balances, leaving peak days uncovered.
- Insurance: policy terms that let proceeds fall into the PSP's estate or end on insolvency.
- Both: an account at an institution that is not eligible under section 13, or held through an intermediary PSP.
How does a combined arrangement work on a peak day?
The trust account takes the base balance and the insured account takes the variable part, within its cover.
Worked example. A PSP keeps most end-user funds in a trust account and runs a separate insured account for a business payments product, with insurance cover of CAD 10.0 million. Its daily position over one week is shown below.
| Day | Trust account (CAD m) | Insured account (CAD m) | Cover (CAD m) | Uncovered (CAD m) |
|---|---|---|---|---|
| Monday | 50.0 | 8.2 | 10.0 | 0.0 |
| Tuesday | 51.4 | 9.1 | 10.0 | 0.0 |
| Wednesday, before payroll | 52.0 | 11.6 | 10.0 | 1.6 |
| Thursday | 49.8 | 7.4 | 10.0 | 0.0 |
| Friday | 50.6 | 8.0 | 10.0 | 0.0 |
On Wednesday, CAD 1.6 million of the insured account was above cover, so it was not protected as section 20(1)(c) requires. That is an instance the PSP must identify and investigate under section 16 of the RPAR. The fix is operational: sweep any insured balance above CAD 9.5 million into the trust account before close, or raise the cover to the peak. Either way, the framework should record the method and the reason, and the next annual review should test whether it actually worked.
What should a PSP check before choosing?
These checks decide which method, or which mix, fits the business.
- Obtain legal advice on the validity of the express trust, including any Quebec analysis.
- Confirm the account provider is eligible and will acknowledge it has no recourse to the funds.
- For insurance, confirm the provider is eligible and unaffiliated and the terms meet section 14.
- Model daily balances, peaks and growth for any insured account.
- Keep each safeguarding account free of fees, revenue and operating payments.
- Diary the 30-day notice to the Bank before any cancellation of cover.
- Record the chosen method and its reasons in the safeguarding framework.
How does Safeheld help?
Safeheld reconciles trust and insured accounts to the end-user ledger every day, by entity and currency, and flags any day an insured balance exceeds cover.
See daily reconciliation and RPAA safeguarding in Canada.
Frequently asked questions
What safeguarding methods does the RPAA allow?
Holding end-user funds in trust in a trust account used for no other purpose, holding them in a prescribed account or manner, or holding them in an account used for no other purpose with insurance or a guarantee at least equal to the balance.
What makes an RPAA trust account valid?
A valid express trust under Canadian law, confirmed by legal advice, an agreement with the account provider stating the funds are held in trust, and an account used for no other purpose.
Who can provide RPAA safeguarding insurance or a guarantee?
An entity listed in paragraphs 9(a) to (h) of the RPAA, or a comparably regulated foreign financial institution, that is not affiliated with the PSP.
When does RPAA insurance or a guarantee pay out?
As soon as feasible after the PSP starts or consents to an insolvency proceeding, or 30 days after another party starts one that is not discontinued or dismissed.
Can a PSP use both a trust account and insurance?
Yes. The Bank of Canada allows combinations of methods and providers, provided each part meets its requirements.
How are trusts handled in Quebec?
The arrangement must qualify as a trust under the Civil Code of Québec or use the simple administration regime, with the PSP as administrator appointed by the beneficiary.
Does a trust account protect funds received outside it?
No. Funds still sitting in an operating account are held but not yet safeguarded; the Bank expects them to reach the safeguarding account on receipt, or by the end of the next business day at the latest.
Can the account provider set off the funds against the PSP's debts?
No. Section 20(3) of the RPAA prevents the institution maintaining the account from asserting any right of set-off or compensation over the funds.
References
- Retail Payment Activities Act (S.C. 2021, c. 23, s. 177), section 20
- Retail Payment Activities Regulations (SOR/2023-229), sections 13 to 15
- Retail Payment Activities Regulations (SOR/2023-229), sections 16 to 20
- Bank of Canada, Safeguarding end-user funds guideline (December 2024)
- Bank of Canada, Safeguarding of end-user funds: at a glance (February 2025, PDF)
- Bank of Canada, Safeguarding end-user funds: consultation findings and responses (December 2024, PDF)
About Safeheld
Safeheld is reconciliation and regulatory financial control software for regulated firms that hold client money. For Canadian PSPs it reconciles trust and insured accounts to the end-user ledger every day and shows any balance above insurance or guarantee cover. To discuss your safeguarding operations, contact us at safeheld.com/contact.
This article is general information on Canadian retail payment rules and is not legal or regulatory advice.