In Q2 2022, FSRA noted gaps in mortgage brokerages’ processes to determine investors' Permitted Client (PC) status before they were placed in non-qualified syndicated mortgages (NQSMI). These findings came from a review of mortgage brokerages’ policies and processes to assess their understanding and alignment with the NQSMI Supervision Framework. FSRA advised mortgage brokerages to address any noted gaps and ensure their policies and procedures were updated and sufficiently fulsome.

What this means for you

Mortgage brokerages should continue to familiarize themselves with FSRA’s NQSMI Supervision Approach Guidance and other available resource materials. This will help ensure investors placed in NQSMI transactions are PCs and that brokerages have appropriate policies and procedures. Mortgage brokerages should remain informed of all changes to MBLAA, FSRA Guidance and Rules.

What we did and how we did it

FSRA set out to determine whether investors in NQSMI under its jurisdiction met the PC definition and noted some ongoing gaps[1]. Through this review, FSRA helped ensure that investors in NQSMI received appropriate protection based on their experience and knowledge of financial matters.

A year after the NQSMI supervision framework’s effective change[2], FSRA surveyed all 46 mortgage brokerages which reported dealing in NQSMIs[3] and reviewed their processes to determine the status of the investors in these transactions. Excerpts from the brokerages’ policies and procedures manuals related to NQSMIs were also requested and reviewed.

What we found and how we addressed it

Our review of the survey responses received from all 46 mortgage brokerages identified the following key items:

  • 89% (41) of brokerages are using a signed attestation by the investor confirming the investor’s status
  • 89% (41) of brokerages are using a Know-Your-Client form or similar document
  • 89% (41) of brokerages are monitoring PC status at the time of extension/renewal
  • 41% (19) of brokerages have established policies and procedures which represent a fulsome process for documenting the steps required to verify PC status.
  • 48% (22) of brokerages have utilized a key “best practice” to validate PC status by collecting third-party support documentation (e.g., accountant’s letter, financial statements, etc.) where warranted.

FSRA also noted that most brokerages’ processes to determine the status of investors for a NQSMI included:

  • Obtaining a signed attestation by the investor confirming the investor’s status
  • Using a Know-Your-Client form or another similar document ensuring adequate identification of the client’s profile
  • Obtaining third-party support documentation validating the PC status (e.g.: bank statements, lawyer or accountant letter, etc.)
  • Having and implementing documented comprehensive policies and procedures
  • Monitoring PC status at the time of extension/renewal, or sooner (if applicable)

FSRA is now performing follow-up file spot checks to ensure that:

  • there is adequate documentation of the PC status
  • established policies and procedures and any remediation work reported to FSRA were effectively implemented

[1] Subject to applicable legislative exemptions outlined in MBLAA and Ontario Regulation 407/07 and the FSRA Supervision Approach Guidance.
[2] The FSRA Supervision Approach Guidance was published on March 10, 2021 and became effective in July 1, 2021.
[3] As reported in their First and Second 2021 NQSMI Quarterly Reports covering July to December 2021.