Two recent decisions from the Financial Services Tribunal (FST) offer important lessons for the mortgage brokering sector.
Together, the decisions reinforce two key points. First, FSRA may consider conduct outside its regulated sectors when deciding whether someone is suitable to hold a licence. Second, FSRA can use different enforcement tools to address misconduct and protect consumers.
Although both cases arose in the insurance sector, the lessons apply more broadly across financial services. Read on to learn more.
What does this mean for me?
Principal brokers should look beyond a person’s mortgage sector history when hiring, sponsoring or supervising licensees. Conduct or regulatory issues in another sector may raise suitability concerns.
Strong supervisory controls matter as well. Brokerages should make sure those controls are in place and properly documented. If a compliance issue arises, addressing it early can make a meaningful difference.
Accountability is another important consideration. Taking responsibility, cooperating with regulators, and correcting problems can all be relevant when suitability concerns arise.
Suitability is about the full picture
In Dziadecki v. Ontario, the FST upheld FSRA’s proposal to refuse to renew an insurance agent licence.
The applicant had a lengthy and escalating enforcement history in the capital markets. This included matters involving the Ontario Securities Commission, the Mutual Fund Dealers Association and the Canadian Investment Regulatory Organization.
He argued that he was still suitable for an insurance licence because the misconduct had not occurred in the insurance sector. The FST disagreed.
The decision confirms that conduct in another financial services sector can matter when FSRA assesses suitability. The assessment looks at a person’s overall conduct and regulatory history, not just their record in one sector.
The FST made another important point about previous tribunals. It will not relitigate or revisit matters already decided elsewhere, but it can consider the decisions of other regulatory tribunals when assessing suitability.
Protection of the public and not personal hardship affects the outcome of a suitability concern. The FST found that the effect of a licensing decision on someone’s ability to earn a living does not determine whether they are suitable to hold a licence.
Accountability played a role in the outcome too. The FST did not consider licence conditions as an appropriate alternative to refusal of the licence because the applicant had not taken sufficient responsibility for earlier misconduct nor demonstrated respect for the regulatory obligations that licensing requires.
One matter can lead to multiple regulatory actions
In Daumier Financial Services Inc., et al. v. Ontario, the FST addressed several procedural issues related to FSRA’s enforcement authority.
One key finding was that FSRA may pursue licensing action and administrative monetary penalties through separate proceedings.
In practical terms, resolving a licensing matter does not necessarily end all regulatory action arising from the same conduct. Where appropriate, FSRA can take licensing action quickly to protect the public while still pursuing its investigation for further enforcement action.
The decision further confirmed a broad approach to limitation periods. The limitation period can run from the discovery of each separate contravention, even when several contraventions are connected to the same overall scheme.