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Large Value Transfer System (LVTS)
What is LVTS?
LVTS is Canada’s new electronic settlement system designed to facilitate same day settlement of Canadian dollar payments in Canada. Initially, it is being used to settle Canadian dollar wire payment transactions of any dollar amount. Settlement of other payment types may migrate to LVTS in the future.
LVTS is owned and operated by the Canadian Payments Association (CPA) and its development was initiated by the Bank of Canada and the federal Department of Finance (the CPA’s ultimate regulatory authority).
LVTS was developed to:
Enhance Canada’s international reputation
LVTS was developed to enhance Canada’s international reputation and global competitive position by providing an electronic payment system that offers certainty of settlement and finality of payment on a same day basis.
Most of the G10 countries have (or are in the process of implementing) similar risk proofed settlement systems. With LVTS, the international community will have more confidence in dealing with the Canadian payment system when conducting international business transactions.
Reduce systemic risk
Previously, wire payments were settled via the Automated Clearing and Settlement System (ACSS) on a next day basis, back-dated to the previous day. In the event that a financial institution was unable to settle wires sent the previous day, those wires could have been unwound. In addition, the failure of one institution to meet its settlement obligations could have caused another institution to fail. This is referred to as "systemic risk".
LVTS removes systemic risk as all accepted LVTS payments are backed by collateral pledged to the Bank of Canada and the Bank of Canada guarantees settlement of LVTS payments. In the event of the failure of an institution, the collateral would be used to cover that institution’s settlement obligations and the Bank of Canada guarantees any shortfall. Settlement is therefore guaranteed and occurs on a same day basis.
Under LVTS rules, LVTS payments will become final and irrevocable when they pass LVTS risk control tests. A payment processed through LVTS is assigned a Payment Confirmation Reference Number (PCRN) which indicates that the payment has passed all LVTS risk control tests and is considered final and irrevocable.
Other settlement streams vs. LVTS
While wire payments are settled under LVTS, the remaining payments such as cheques, drafts, foreign exchange wire payments, pre-authorized debits, Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT), continue to be settled via ACSS on a next day basis.
The CPA’s long term goal is to move as many large value and time sensitive payments as possible from paper to LVTS. The move to LVTS is very important as it will ensure that the majority of the value of payments exchanged within Canada during any business day will benefit from the risk proofing benefits of LVTS.
The benefits of LVTS
- system is secure and allows for same day settlement and availability of funds
- LVTS payments which pass all risk controls tests will result in funds which are guaranteed, considered final and irrevocable
- LVTS payments are assigned a Payment Confirmation Reference Number (PCRN), which provides indisputable proof of receipt of payment by your financial institution.
If you have any questions or comments, call us. We’re here to help make it easier. Please contact a TD Account Manager or call 1-800-263-0287.
Frequently Asked Questions:
Q. What is finality of payment?
A. Finality of payment means that the payment can not be unwound, nor can there be a stop payment issued against it.
Q. My branch gives us immediate value for cheques deposited to our business account. Why should we request that our customers remit payment to us in the form of a LVTS wire payment?
A. Receiving funds settled through LVTS versus cheque ensures immediate and irrevocable access to funds. Balances resulting from cheque deposits may be taken back for a number of reasons, including: the issuer of the cheque does not have sufficient funds to cover it, the cheque was forged, or if the financial institution against which the cheque was written defaults.
Q. Are all financial institutions in Canada participating in LVTS?
A. There are currently 16 member participants, which includes the Bank of Canada and all major Canadian Banks.
Q. Why is it called the Large Value Transfer System if it will be used for payments of any dollar amount?
A. The name "Large Value Transfer System" is a misnomer. Canadian dollar wire payments, regardless of amount, will be settled through LVTS.
Q. Will LVTS affect our U.S. or other non Canadian dollar wire payments?
A. No. LVTS is meant to address risk associated with the Canadian dollar payments only.
Q. Will LVTS affect the Canadian dollar wires my company initiates between TD branches?
A. No. TD to TD branch wires are settled internally to TD and will not fall under LVTS.
Q. Will other types of paper or electronic payments be settled under LVTS?
A. At this time, other payment types continue to be settled via ACSS on a next day basis. Discussions amongst participating banks may commence regarding the settlement of other payment types, e.g., cheques, drafts, Electronic Funds Transfer, Electronic Data Interchange, through LVTS.
Q. Is LVTS the same as a RTGS (Real Time Gross Settlement system)?
A. A Real Time Gross Settlement System is the term used by other countries who have introduced settlement systems similar to LVTS. A RTGS is similar to LVTS in that there is real time risk mitigation, certainty of settlement and same day finality of payment. The two critical differences are 1) various types of cancellations are permitted with RTGS systems, whereas, under LVTS, under no circumstances can a LVTS wire payment which has settled be unwound, and 2) RTGS systems have the ability to settle on a payment by payment basis, whereas, under LVTS, payments are settled on a multilateral net basis at the end of the day.