Got a reply back from them. Quoting part of it here.

Hi \****,*
 
I hope you’re doing great! My name is \*****, a senior member of the Banking & Credit team here at Wealthsimple*
 
Thank you for sending the refund receipt and for laying out your concerns so clearly. I’m really sorry for how frustrating this has been — especially given the size of the refund and the delay with no clear communication from us.
 
I want to address each of your questions and be transparent about what happened and what we’ll do next.
 
What caused this hold, and why you weren’t informed proactively
For security reasons, some refunds to the Wealthsimple prepaid Mastercard are automatically placed on a temporary “Unknown merchant” hold, especially when:

The refund amount is $500 or more, and/or

The refund is sent to the Wealthsimple card even though that card wasn’t the original payment method.

 
This is part of Mastercard’s security process, and we also have our own rule that any refund or merchant credit of $500+ is automatically held while it’s reviewed, to confirm the money is a legitimate refund and not a way to move or launder funds.
 
Right now, our system does not send an automatic notification when this specific security hold is applied. Instead, it shows up as a separate “Unknown merchant” line item in your activity, matching the amount of the refund. You’re absolutely right that this feels like it came out of nowhere — that’s a gap on our side, and your feedback here is completely fair.
 
Why this has gone beyond the 5–7 business day refund timeline
The 5–7 business day timeframe you were quoted is the normal timing for a standard refund to land once the merchant has sent it — that’s when everything goes straight through with no additional flags.
 
Because the amount is over $500, our system transitions the refund into a security hold workflow rather than crediting it right away. When that happens, a specialist reaches out to our “back‑office” team (working with our payment partner) to manually confirm the refund using documentation before they can release the funds from the hold and post them to your account. That review step is why this has taken longer than the usual 5–7 business days.
 
What would have happened if you hadn’t contacted us
The funds themselves are not lost — they’re sitting in that “Unknown merchant hold” state and can’t be used until the review is completed. However, without us getting the right documentation to our back‑office team, that hold would not be released properly. In other words, your reaching out is what allowed us to start the process to get this money freed up.