Introduction

Canada’s Retail Payment Activities Act (RPAA) establishes a regulatory framework for Payment Service Providers (PSPs) operating in Canada. Organizations subject to the RPAA must implement operational risk controls designed to protect the integrity, availability, and reliability of retail payment services.

One of the most significant obligations under this framework is the requirement for certain PSPs to conduct an independent review of their operational risk management and incident response frameworks.

Independent review forms part of the broader operational risk management framework required under the RPAA. A technical overview of how those frameworks are structured can be found here:

This review helps ensure that a PSP’s operational risk controls are effective and that the organization can identify, mitigate, and respond to incidents that could disrupt payment services.

The legal structure of these operational risk and incident response frameworks is explained in more detail here:

Who Must Conduct an Independent Review

Under the Retail Payment Activities Regulations (RPAR), Payment Service Providers that maintain an internal or external auditor must ensure that their operational risk management and incident response frameworks are reviewed independently at least once every three years.

The independent review must be carried out by a sufficiently skilled individual who has had no role in establishing, implementing, or maintaining the PSP’s framework.

This requirement ensures that the review is performed objectively and that the effectiveness of the framework is evaluated by someone independent from its operation.

PSPs that do not have an internal or external auditor are not required to conduct an independent review under the regulations, though they must still maintain and internally review their operational risk framework.

The regulatory requirements can be reviewed in the Retail Payment Activities Regulations (SOR/2023-229) published in the Canada Gazette:

What the Independent Review Must Evaluate

According to the Bank of Canada supervisory guideline for operational risk and incident response, the independent review must assess whether the PSP’s framework:

  • conforms with operational risk requirements under the RPAA and RPAR
  • effectively identifies and mitigates operational risks
  • supports timely detection and response to incidents

The review should evaluate the completeness and effectiveness of the framework, including the policies, procedures, processes, systems, and controls used to manage operational risk.

Operational risks under the RPAA may arise from:

  • technology infrastructure failures
  • Cybersecurity incidents
  • internal processes or human error
  • third-party service providers

Because payment systems rely heavily on digital infrastructure, technology and Cybersecurity risks are often central to these reviews.

The Bank of Canada supervisory guidance describing how these frameworks are evaluated can be reviewed here:

Scope of the Independent Review

The scope of the independent review should reflect the PSP’s operational complexity and technology environment.

According to Bank of Canada guidance, the review should assess the effectiveness of the framework and how it has been established, implemented, and maintained.

The review may evaluate:

  • operational risk policies and procedures
  • system architecture and operational controls
  • incident detection and response capabilities
  • resilience and recovery processes
  • monitoring and logging capabilities

Where PSPs rely on third-party service providers, the review should also consider:

  • vendor selection and due diligence processes
  • contractual security requirements
  • oversight of third-party services

This ensures that operational risks introduced through external dependencies are properly managed.

Who Can Perform the Independent Review

The independent review must be conducted by a sufficiently skilled individual who has had no role in establishing, implementing, or maintaining the PSP’s operational risk and incident response framework.

The reviewer may be:

  • an internal resource who is independent from the operation of the framework
  • an external reviewer with expertise in operational risk, technology systems, or Cybersecurity

In practice, many organizations choose to engage external reviewers because they provide a clearer degree of independence and may bring specialized expertise in evaluating complex technology environments.

Regardless of whether the reviewer is internal or external, the key requirement is that the reviewer must be independent of the framework being evaluated and capable of assessing the effectiveness of the PSP’s operational risk controls.

Documentation and Recordkeeping

The regulations require PSPs to maintain documentation related to the independent review.

This documentation must include:

  • the reviewer’s name or organization
  • the date of the review
  • the scope and methodology used
  • the findings and observations from the review

This documentation becomes part of the PSP’s operational risk records and may be reviewed by regulators during supervisory assessments.

Identifying and Addressing Gaps

Independent reviews should identify gaps or vulnerabilities within the PSP’s operational risk and incident response framework.

These gaps may include weaknesses in:

  • technology systems or infrastructure
  • operational processes
  • Cybersecurity safeguards
  • monitoring or incident response capabilities

After the review, PSPs are expected to:

  • document findings and lessons learned
  • prioritize remediation actions
  • implement improvements to their framework

The Bank of Canada expects organizations to apply a risk-based approach when prioritizing remediation activities.

Where vulnerabilities are identified, PSPs must also report them to the senior officer responsible for the framework, along with any measures being taken to address them.

How Cybersecurity Fits Into the Independent Review

Operational risk in payment systems is often closely tied to Cybersecurity and infrastructure resilience.

Payment platforms depend on complex technology stacks that include:

  • cloud infrastructure
  • APIs and payment gateways
  • identity and access management systems
  • third-party service providers

Failures in these systems can result in service disruptions, security breaches, or operational incidents affecting payment services.

For this reason, many organizations incorporate technical Cybersecurity assessments as part of their independent review process to validate that operational controls are functioning effectively.

These assessments may evaluate:

  • infrastructure architecture
  • identity and access management controls
  • monitoring and incident detection capabilities
  • system resilience and recovery procedures
  • third-party integration risks

Cybersecurity controls often form a major component of operational risk reviews for payment systems.

A broader overview of Cybersecurity expectations under the RPAA can be found here:

Preparing for RPAA Compliance

Organizations preparing for RPAA supervision should ensure that their operational risk and incident response frameworks are:

  • clearly documented
  • supported by appropriate technical controls
  • reviewed periodically
  • validated through independent assessment where required

Establishing strong operational risk governance and conducting independent reviews early can help PSPs identify gaps before regulatory scrutiny, partner due diligence, or investor reviews occur.

Organizations often begin this process by establishing the operational risk and incident response frameworks required by the RPAA. A broader technical overview of those frameworks can be found here: