Why is FSRA interested?

In an effort to ensure that NQSMI investors/lenders were provided with the required enhanced disclosures to make informed investment decisions, FSRA’s Real-Time Supervision of disclosures of new NQSMI transactions started when the FSRA Fee Rule 2019-001 became effective in June 8, 2019.

The Fee Rule requires mortgage brokerages to file Form 3.2 when it is provided to the first investor or potential investor at the point of sale. The primary purpose of the “real-time” review is to allow FSRA to take timely action on identified high-risk transactions. This includes requests for additional and/or clearer disclosures to be documented and shared with investors to confirm their continued interest in in the project. Another key objective is to track NQSMI activities and market trends.

What we did and how we did it

To reduce regulatory burden when brokerages deal with sophisticated investors1, FSRA implemented revised shortened versions of the NQSMI Forms 3.0, 3.1 and 3.2 in December 2019. 

These revised forms significantly reduced the disclosure requirements for brokerages that deal with these investors. In late 2020 and early 2021, FSRA performed a review of the brokerages that submitted these shortened Forms 3.2 to assess the risk of these brokerages’ mis-using the new forms, i.e. not used for sophisticated investors only.

Based on the review of historical NQSMI transactions as per the Annual Information Returns (AIRs) and proportional average investments by designated investors for each of these brokerages, FSRA did not note any significant variations from previously reported data. We concluded that the risk of misuse of the shortened version of the Forms 3.2 is low.  

What we found

Mortgage brokerages reported the following NQSMI data in the 2018 and 2019 AIRs:

  • the number of NQSMI mortgages brokered and co-brokered decreased by 2.2%, from 1,480 to 1,448 in 2019
  • the total dollar value of these transactions increased by 5.2% to $8.9B (from $8.5B in 2018),
  • the average transaction size was $6.2M.

Preliminary 2020 NQSMI data indicates that the number of NQSMI mortgages brokered and co-brokered decreased by 28% to 1039 for a total amount of $8B (6.25% decrease). FSRA’s intense supervision and the continued market uncertainty might have impacted the number of NQSMI mortgages since 2019.

The table below provides an overview of the forms filed and reviewed between June 2019 and April 2021 on NQSMI transactions brokered (not including co-brokering):

Table 1: NQSMI Summary Data


January 1, 2021 to April 30, 2021
(4 months)

January 1, 2020 to December 31, 2020
(12 months)

June 6, 2019 to December 31, 2019
(6 months)

Total Forms received (excluding straight renewals/buyouts/submitted in errors/others)




Number of Brokerages that submitted forms




Total Face Value of transactions received




Average Face Value of NQSMIs submissions




Average Investment Value of NQSMIs submissions




Average number of investors per transaction




# of transactions with at least 1 designated class investors




# of transactions for Development or Construction purposes




Total value of transactions for Development or Construction purposes




*Does not include 111 transactions filed between June 6, 2019 and November 15, 2019 as this information was not collected yet.

While the average number of investors per transaction has remained constant (i.e. five investors per transaction), the average value of individual investment has increased by 34% since FSRA implemented real-time supervision. This appears to support the trend that more sophisticated investors are participating in NQSMI transactions.

FSRA noted that the most common disclosure deficiencies from the prescribed forms filed are:

  • Incomplete disclosure Forms 3.2 submitted even where follow-ups indicated that the information was mostly available in other mortgage documentation e.g.: use of funds, ranking, transaction specific material risks.
  • Certain Form 3.2’s used Loan-To-Value (LTV) calculation methods that relied on future assumptions in valuing the land, especially in construction and development projects, and did not comply with the “as-is” valuation methodology prescribed in the legislation and disclosure forms.
  • FSRA actions: FSRA followed-up with these brokerages when this occurred to obtain clarification and ensure that they also disclosed the as-is value and LTV calculation using this valuation to the investors. 
  • Since early 2020, FSRA required brokerages to disclose Covid-19 risks in the material risks section of Form 3.2. Several brokerages did not disclose these risks.
  • FSRA actions: FSRA followed-up with these brokerages to ensure that they disclosed these risks and resubmitted the disclosure forms to the investors. Copies of the investors’ signed and updated forms were required in most cases.
  • Several appraisals were not completed within the year prior to the transaction.
  • FSRA actions: FSRA followed-up with the applicable brokerages to determine the reason for this. FSRA assessed the brokerages’ responses to determine the impact of an appraisal that were over 12 months old, based on current market risk and the class of investors involved in the project.

FSRA’s review of each of these transactions revealed that, in 2020 and 2021, there were no transactions posing a high investor protection risk. This assessment was based on whether the NQSMI transactions themselves were identified as being high risk (i.e. high Loan-To-Value ratio, existence of a subordination clause, and conflicts of interest) and whether the investors were sophisticated.

However, there were five NQSMI transactions that were rated as high risk in 2019 which were marketed to investors, including retail investors. FSRA examined the related mortgage brokerage and administrator and took timely regulatory measures to mitigate investor protection risks by December 2019. 

What this means for you

Real-time supervision was a novel oversight approach which, by its implementation, supported improved industry disclosure practices and enhanced investor protection. While the number of follow-ups and issues noted (on an annualized basis) increased in 2021 compare to 2020, they were addressed faster in the responses and supporting documentation provided by the brokerages. This indicated a better appreciation of regulatory and compliance concerns.

Table 2: Follow-up Summary


January 1, 2021 to April 30, 2021
(4 months)

January 1, 2020 to December 31, 2020
(12 months)

June 6, 2019 to December 31, 2019
(6 months)

Total number of follow-ups with brokerage completed5




Annualized number of follow-ups with brokerage completed




Total number of issues for all follow-ups




Effective July 1, 2021, Forms 3.0, 3.1 and 3.2 will be discontinued and subsection 6.3 of the Fee Rule will no longer apply. Until then, mortgage brokerages are still required to file Form 3.2s on new NQSMI transactions with FSRA within five days of presenting the disclosure form to the first potential investor. FSRA will be sharing its findings with the OSC as it will assume oversight responsibilities for NQSMIs that are sold to retail investors.

We encourage mortgage brokerages dealing in NQSMIs to familiarized themselves with the following:

1 A sophisticated investor is an investor that is member of a Designated Class who are a/an: (1) Non-Individual, or (2) Individual who, alone or together with his or her spouse, beneficially owns financial assets (being cash, securities within the meaning of the Securities Act, the cash surrender value of a life insurance contract; a deposit or evidence of a deposit) that have an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5 million and who provides written confirmation of this to the brokerage.
2 On an annualized basis, the number of NQSMI transactions in 2021 would be about 561 transactions, totaling approx. $6 billion on an annualized basis.
3 The large discrepancy between the number of Forms 3.2 filed under the Real-Time Supervision and the reported number of NQSMI mortgages in the 2020 AIR might be explained by the fact that the AIR asks for NQSMI mortgages that have been brokered and co-brokered. In the Real-Time Supervision exercise, only the lead brokerages submitted forms. FSRA is currently reviewing the data for each mortgage brokerage that submitted a form to assess the specific discrepancies and will follow-up where appropriate for clarification.
4 On an annualized basis, the number of NQSMI transactions in 2019 would be about 614 transactions totaling approx. $4.8 billion on an annualized basis.
5 A small portion of these follow-ups led to revised Forms 3.2. being completed, provided to investors for their further review with the option to rescind their investment interest based on the new information.