Mortgage Brokering – News you need, volume 10 | Financial Services Regulatory Authority of Ontario

Welcome

Dear mortgage professionals,

Since our last newsletter, the pressures facing Ontario’s housing market continue to intensify, creating greater vulnerability for consumer clients. Ongoing U.S. tariff uncertainty, geopolitical conflict, supply chain disruptions, elevated fuel and grocery costs and an unsteady labour market are all contributing to a challenging environment for borrowers and investors.

As mortgage professionals, you play a critical role in helping your clients make informed decisions. And in such uncertain times, the need for increased due diligence and sound judgment is more important than ever. This means consistently adhering to legal and regulatory requirements, maintaining strong compliance oversight at both the firm and individual level, and keeping in mind at all times the overall objective of ensuring consumers are presented with mortgage product choices that are suitable to their needs.

In particular, Principal Brokers (PBs) have an essential responsibility to safeguard consumers and uphold market confidence. As part of their supervisory role, PBs must be aware of their agents’ and brokers’ concurrent business activities, particularly those that may impact the brokerage’s own compliance with the Mortgage Brokerages, Lenders and Administrators Act (MBLAA). This includes circumstances where agents or brokers establish and run a mortgage administrator business in addition to their brokering activities.

Without proper oversight, outside ventures, including investment-related businesses, can at minimum create conflicts of interest or, worse, cause the brokerage to be in contravention of the MBLAA. Effective supervision depends on clear visibility into these activities, policies and procedures that address these issues, and proactive risk management to ensure those policies are followed by all agents and brokers authorized by the brokerage.

The current economic climate combined with insufficient compliance is also creating risks for investors. For example, some high-net-worth investors are being steered toward complex or higher-risk products, including unsecured promissory notes.

While these products may fall under the Ontario Securities Commission’s (OSC) jurisdiction, improper use of these products by licensees can lead to poor outcomes for investors and serious consequences from both the OSC and FSRA for the licensee, as recent enforcement actions demonstrate. Moreover, sanction by the OSC may result in FSRA determining that an agent or broker is unsuitable to remain licensed under the MBLAA.

FSRA has also observed instances where market participants deviate from established practices, make compromises in compliance decisions, often with good intentions but these deviations ultimately result in harmful outcomes for consumers and for licensees. Misrepresenting documents, routing mortgage-related funds through personal accounts, or otherwise attempting to expedite transactions by cutting compliance corners can expose both clients and licence holders (and their brokerages) to serious risk, including enforcement action. What may seem like a short-term solution can quickly result in long-term consequences.

As always, we encourage you to read the following selection of articles and other FSRA publications to stay informed and to better understand how to protect your clients and your business. Thank you for your continued efforts in ensuring a safe and vibrant mortgage brokering sector in Ontario.

-- Gina Stephens, Director, Mortgage Broker Conduct

Dealing in promissory notes could land you in hot water with the OSC and FSRA

FSRA continues to observe situations where mortgage professionals become involved in promoting, issuing or facilitating promissory notes. This can expose you to serious legal and regulatory consequences. Understanding where mortgage regulation ends, where securities regulation begins and the serious consequences of crossing that line is essential.

Holding an agent or broker licence does not make you an exempt private lender

Holding a mortgage agent or broker licence does not allow you to lend money or conduct transactions outside a licensed brokerage. All mortgage transactions in Ontario must go through a licensed mortgage brokerage or an exempt party, regardless of whether a fee is being charged. Failing to follow these requirements can expose both you and your brokerage to serious regulatory consequences.

Tribunal decision highlights risks of not meeting regulatory obligations

FSRA has taken action to protect consumers and maintain confidence in the mortgage brokering sector by imposing significant administrative monetary penalties and a compliance order on Harold Gerstel.

The risks of outside activities: how to make sure your agents and brokers aren’t putting your brokerage at risk

Principal brokers and brokerage leadership must actively supervising agents’ and brokers’ concurrent and outside business activities. If not properly managed, these activities can introduce conflicts of interest, supervisory gaps and consumer harm that ultimately expose the brokerage to regulatory risk and potential contraventions under MBLAA.

You got your client a private mortgage, but do they have a plan to get out?

When arranging a private mortgage, your client must have a realistic exit strategy for the mortgage to be considered suitable. Under MBLAA, mortgage professionals must ensure that recommended products are suitable for a client’s individual needs.

You’ve heard about “know your client,” but do you know your lender?

When working with private mortgages, particularly when representing individual private lenders, it’s critical that you verify a lender’s source of funds. Failing to do so can put the borrower, lender and brokerage at significant risk. Doing your due diligence helps protect the integrity of the Ontario mortgage market and prevent avoidable consumer harm.

Are you telling your clients everything they need to know?

Transparency is essential in all mortgage transactions, particularly with private mortgages. Borrowers need a clear understanding of every fee, including why it was charged and who receives it, to make an informed decision. Presenting fees prominently and labeling them accurately at every stage helps protect consumers.

Helpful resources to protect vulnerable clients

We encourage mortgage professionals to leverage FSRA’s Vulnerability Framework when considering clients’ potential vulnerabilities such as financial stress, limited financial literacy or major life changes. Applying these considerations helps you make suitable product recommendations to protect your clients. For context, the Framework outlines a principles-based approach to better protect consumers at higher risk of financial harm due to personal, social, or economic circumstances. It also emphasizes the importance of understanding risks and educating consumers.

New and Improved AIR coming for 2027

FSRA will soon launch a redesigned Annual Information Return that will be shorter, easier, and faster to file. Alongside the new questionnaire, FSRA will also introduce a guide to provide clear, practical support as you complete your filing, including answers to common questions and step-by-step assistance.

Mortgage Brokering – News you need, volume 10

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