Sign in Subscribe
Banks (Finance)

Canada's Banking Industry on the Brink of a Regulatory Revolution: APP Fraud Prevention and Compensation Reforms Loom on the Horizon

Strategic Insights

— 2 min read

Recent statistics from Statistics Canada reveal a staggering 12% increase in police-reported fraud from 2022 to 2023, with authorized push payment (APP) fraud being a particularly concerning type. Young Canadians are disproportionately affected, and with the rise of social media and electronic payment methods, they are more vulnerable to APP fraud. This type of fraud often goes undetected, and victims often face significant challenges in recovering their losses.

The United Kingdom has already implemented a regulatory framework that reallocates liability for APP fraud losses from victims to payment service providers (PSPs). In contrast, Canada's current framework has not addressed this issue, but potential reforms to the Bank Act, along with recent amendments to Quebec's Consumer Protection Act, suggest a shift towards a similar approach may be imminent.

Key Takeaways:

  • Recent Statistics Canada data showed a 12% increase in police-reported fraud from 2022 to 2023, with APP fraud being a major concern.
  • Young Canadians are significantly more likely to have experienced APP fraud, likely due to their higher use of social media platforms and electronic payment methods.
  • The United Kingdom's regulatory framework reallocates liability for APP fraud losses from victims to PSPs, mandating reimbursement for victims in most circumstances.
  • Potential reforms to Canada's Bank Act, along with recent amendments to Quebec's Consumer Protection Act, suggest a shift towards a similar approach may be on the horizon.
  • The Department of Finance is reviewing Canada's federal financial institutions legislation, including the Bank Act, with a potential sunset date of June 30, 2026.
  • Recent case law, including the British Columbia Court of Appeal's decision in Zheng v Bank of China (Canada) Vancouver Richmond Branch, has left open the possibility that banks may have new prevention obligations in the case of APP fraud.

Statistics:

  • 12% increase in police-reported fraud in Canada from 2022 to 2023 (Statistics Canada)
  • APP fraud victims often face significant challenges in recovering their losses
  • $85,000 per claim is the maximum amount that PSPs are required to reimburse in the UK's regulatory framework
  • 5-35 business days is the timeframe for PSPs to reimburse APP fraud victims in the UK's regulatory framework

Sources:

  • Statistics Canada: Police-reported crime in Canada: 2022
  • Financial Services and Markets Act 2023 (U.K.)
  • The Payment Services Regulations 2017 (U.K.)
  • Department of Finance: Consultation Paper on Proposals to Strengthen Canada's Financial Sector
  • Zheng v Bank of China (Canada) Vancouver Richmond Branch (British Columbia Court of Appeal)
  • Bill 72, An Act to amend the Consumer Protection Act (Quebec)

Read more