Syndicated mortgage investments (SMIs) can fall under more than one regulatory framework. Depending on the transaction and the investor, mortgage brokering and securities requirements may both apply.

If you are unsure about which regulatory regime applies, get compliance and legal advice before proceeding. Getting it wrong could create compliance gaps and expose your business to regulatory action.

Read on to better understand your responsibilities when dealing with SMIs.

FSRA’s role

FSRA continues to oversee qualified syndicated mortgages, or QSMIs. These are generally less complex syndicated mortgages that meet specific criteria under Ontario Regulation 188/08. For example, the property must primarily be residential and contain no more than four units. The secured debt must generally not exceed 90 per cent of the property's fair market value.

FSRA oversees certain non-qualified syndicated mortgage investments, or NQSMIs, involving permitted clients. Permitted clients include individuals and organizations that meet specific financial or institutional criteria. They are generally considered to have greater financial knowledge, experience, and resources.

FSRA also regulates licensed mortgage administrators. Their responsibilities include collecting mortgage payments, managing defaults, and holding funds in trust. FSRA’s oversight of a mortgage administrator’s activities continues even when securities regulation applies to the investment side of a syndicated mortgage transaction.

OSC’s role

Since July 1, 2021, the Ontario Securities Commission (OSC) has had primary oversight of NQSMIs sold to non-permitted client investors. These are generally retail investors who do not meet the permitted client criteria.

As a result, higher-risk syndicated mortgages offered to retail investors are regulated under Ontario's securities framework. Depending on the transaction, requirements may include registration, disclosure and prospectus obligations, or an available prospectus exemption.

For example, an NQSMI may be distributed using the offering memorandum exemption if its requirements are met. Securities rules may also include investor protection requirements, such as suitability and disclosure obligations.

One transaction can involve both regimes

A transaction does not always fall neatly under one regulator.

A mortgage brokerage dealing with a borrower may still have obligations under the MBLAA, even when the investment side of an NQSMI is subject to OSC oversight.

Which requirements apply will depend on the borrower, the investors, and the activities being carried out.

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