FSRA’s draft approach guidance describes how the regulatory agency will supervise the activities of mortgage brokers and administrators dealing in certain syndicated mortgage investments post March, 2021 when the securities registration and prospectus exemptions currently available for trades in syndicated mortgages will be removed in Ontario and certain other jurisdictions. After the amendments, FSRA will remain responsible to supervise those who trade in mortgages, qualified syndicated mortgages and non-qualified syndicated mortgages where the investor/lender is a permitted client. They will also regulate mortgage brokers dealing in non-qualified syndicated mortgages when they act on behalf of the borrower even if the investor/lender is a non-permitted client in which case the trades will also be subject to supervision by the Ontario Securities Commission with respect to the investor/lender. The objectives of FSRA’s supervisory approach is to monitor and evaluate non-qualified syndicated mortgages with permitted clients through regular data collection and analysis, and ensure compliance with applicable brokerage legislation. Using the data and its other resources, FSRA will create risk profiles for each mortgage brokerage (and administrator) and target increased oversight where warranted. One focus will be the due diligence conducted by the brokerages to confirm the status of the investors/lenders as permitted clients. Permitted clients may waive a suitability assessment, and non-individual permitted clients will be exempt from certain disclosure requirements, including disclosure of conflicts.
Overview of the Council’s Comments:
We support FSRA’s principles-based approach, and how it intends to utilize data to target supervision of higher-risk brokerages and administrators. It is important to harmonize the definition of “permitted client” across the various regulations dealing with syndicated mortgages. Also, the definition of “qualified syndicated mortgage” is key, as it is intended to be limited to lower-risk mortgages primarily on residential properties. Again, we believe that this definition should be standardized across all CSA jurisdictions relating to prospectus and registration exemptions. We note that the LTV threshold proposed by FSRA is 90% while other jurisdictions have suggested an 80% threshold. We are of the opinion that all the proposed thresholds are too high and should be reduced to 75% because of the decline of the value of property when a default occurs on a mortgage loan; and further because of the various costs associated with a foreclosure.