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Canadian Clearing Environment
The Canadian Payments Association (CPA)
The Payments Clearing and Settlement System has been run by the Canadian Payments Association (CPA) since 1980. Financial institutions that have deposit insurance are members of the CPA. Together, members are responsible for the development of clearing and settlement rules, standards and mechanisms.
Wire payments in Canada are settled under the Large Value Transfer System while the remaining payments are settled via the Automated Clearing Settlement System (ACSS). For more information, please visit the Canadian Payments Association.
Canada ’s Large Value Transfer System (LVTS)
LVTS refers to the wire transfer system in Canada for all Canadian dollar payments, regardless of dollar value. However, as the name implies, the large value payments comprise the majority of all Canadian dollars exchanged among the potential LVTS participants each day.
The LVTS participants are those members of the CPA who choose to provide an acceptable interface to LVTS and have a settlement account at the Bank of Canada. Presently, this includes 14 bank and non-bank members of the CPA, including the Bank of Canada and all other major Canadian banks. The Bank of Canada, in addition to being a participant, has the responsibility of monitoring the flow of payments through LVTS as well as the settlement positions of the participants at all times.
Canada recently replaced the International Interbank Payments System with the LVTS in order to ensure that Canada’s wire payments system provides real time risk management for parties settling Canadian dollars. LVTS guarantees:
- Same Day Certainty of Settlement.The LVTS procedures guarantee that there will be enough collateral available to permit settlement on the books of the Bank of Canada to occur at any time during the day if any participant defaults in meeting its settlement obligations. The amount of credit available for each transaction is validated at the time of the transaction, based on credit limits and positions of the participants involved. If a payment does not pass the risk control test it will be rejected and a rejection notification is sent to the sending participant. In addition to the strict controls provided by LVTS, the Bank of Canada has provided an express guarantee to ensure settlement of LVTS payments in all eventualities.
- Real Time Finality of Payment.The LVTS ensures that when the system advises the receiving participant (the Beneficiary’s financial institution) that the payment has been received, then that payment will never be unwound. As such, LVTS ensures that every confirmed payment is considered final and irrevocable.
Automatic Clearing Settlement System (ACSS)
The exchange of paper-based and electronic paper items is settled via the ACSS. Items cleared via ACSS include: cheques, drafts, foreign exchange wire payments, pre-authorized debits, Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT). The Canadian clearing and settlement system provides same-day value for all Canadian paper items on a next day basis, backdated to the previous business day.