FSRA’s webinar on detecting and preventing mortgage fraud (March 21, 2024)

Tracy

00:03  Hello, everyone, and welcome to today's webinar, The Detecting and Preventing Mortgage Fraud Guidance. Before we get started, I'd like to go over a few items so you know how to participate in today's event. You have the opportunity to submit text questions to today's presenters by typing your questions into the questions pane of the control panel. You may send your questions at any time during the presentation. We will collect these and address them during the Q&A session at the end of today's presentation. Today's webinar is being recorded. The recording and Q&A will be posted on the FSRA website by the end of April. And now I'd like to introduce Jennie Hodgson. Jennie?

Jennie Hodgson

00:43  Thank you, Tracy. Good morning, everyone. Thank you for attending FSRA's webinar on our Guidance on Detecting and Preventing Mortgage Fraud. This is a timely subject to review because March is Fraud Prevention Month. My name is Jennie Hodgson, Senior Manager of Mortgage Broker Conduct at FSRA, and I will be joined by Nadiatou Fagbemi, Senior Manager of Mortgage Broker Conduct. We'll take a look now at our agenda for today, just after we complete our acknowledgement of land. It's important to acknowledge the land we are on is the traditional territory of many nations, including the Mississaugas of the Credit, the Anishinaabek, the Chippewa, the Haudenosaunee, and the Wyandot peoples, and is now home to many diverse First Nations, Inuit and Metis peoples. We acknowledge that Toronto is covered by Treaty 13 with the Mississaugas of the Credit and the Williams Treaties, signed with multiple Mississaugas and Chippewa bands. Now, let's take a look at today's agenda. Today, we're going to be having Nadia walk us through the guidance, which aims to help the industry better understand their obligations regarding detecting and preventing mortgage fraud.

Jennie Hodgson:

01:52  This presentation will focus on the key outcomes FSRA expects licenses to achieve in terms of fraud detection and prevention, and what steps licenses can take to make sure they are meeting that objective. We will have questions at the end. Please enter your questions into the question or chat box. At this time, I'm happy to turn it over to Nadia for our presentation.

Nadiatou Fagbemi

02:17  Thank you, Jennie. Thank you, Tracy. Good morning, everyone. Thank you for making the time for joining us today for this webinar. I am going to start the presentation by talking about the prevalence of mortgage fraud in the current market dynamic. Most of the information on this slide may be familiar to most of the attendees. In the past year and a half, two years, we have seen an increase in news articles discussing title fraud, mortgage fraud, identity theft, and other real-estate-related scams. One of those relating to title fraud is the one where it said, "How organized crime has mortgage or sold at least 30 GTA homes without the owner's knowledge?" Mortgage fraud, and especially title fraud, typically starts with identity theft, which can be perpetrated by any party. The purpose of the detecting and preventing mortgage fraud guidance is to really provide the sector with tools and strategies to strengthen their due diligence process when it comes to reviewing mortgage documentation and identification received from consumers that may be looking to get a mortgage or they may be looking into lending in a mortgage.

Nadiatou Fagbemi

03:23  There have also been title related to door-to-door scams. And titles such as elaborate scam leave seniors with high interest mortgages they didn't want or understand having also been a bit more prevalent in the media in the past few months, and it's been targeting a vulnerable portion of the population. In 2022, FSRA issued a notice warning consumers, but also making sure that licensed agent and broker were not being used to facilitate mortgage fraud or illegal transaction when dealing and trading in mortgages. On March 28, that will be next Thursday, FSRA will actually be hosting, in collaboration with Elder Abuse Prevention Ontario, a webinar discussing door-to-door scam. Gina Stephens, our Director of Mortgage Worker Conduct, Stuart Wilkinson, our Chief Consumer Officer, as well as Chris Zolis, our Head of Forensic Analysis and Investigation, will be part of that webinar, aiming at educating consumers, warning them against those door-to-door scams, but also discussing the role of mortgage agent and broker and ensuring that they are not being used to facilitate illegal transaction.

Nadiatou Fagbemi

04:37  Equifax has actually provided some pretty interesting data related to mortgage fraud. They mentioned that there had been an increase of approximately 18.8% in mortgage fraud rate year-to-year between the second quarter of 2022 and the second quarter of 2023, with first-party mortgage fraud making up 54% of fraud types. First-party mortgage fraud is where a person intentionally misrepresent their mortgage documentation in the hope of securing a mortgage. Typically, financial documents are the type of document that are generally misrepresented. In early February, Equifax also conducted a survey, actually, with around 1,600 Canadian. And the results showed that consumers are increasingly concerned about the rise in identity theft, but also mortgage fraud. In that same report that came out March 4th of this year, they indicated that identity fraud had surged and now represented roughly three-quarter of all fraudulent applications across all sectors. They noted an increase of about 9.9% in mortgage application fraud, with Ontario seeing some of the highest number.

Nadiatou Fagbemi

05:50  First-party mortgage fraud remains present, and this is a token to the important role that the sector plays in combating mortgage fraud. Most people looking to find a mortgage will be transacting with mortgage agent and broker, and the documentation they will be providing to secure those mortgages will be reviewed by the sector. Having strong processes in place to review and verify the information provided help the sector combat mortgage fraud, but also ensure that they meet the regulatory requirements and are not being used to facilitate fraud. The reporting agency, Equifax, also noticed a slight increase in true name fraud where a real person identity is stolen to commit fraud. On the next slide, we will be talking about why did FSRA decide to release the Guidance on Preventing and Detecting Mortgage Fraud? Essentially, this guidance supports FSRA's vision to protect consumer through ensuring financial safety, fairness, and choice. It also helps with promoting high conduct culture within the sector, increase the education, but also ensure that we are preventing and discouraging deceptive and fraudulent conduct and that the sector has appropriate processes in place to do so.

Nadiatou Fagbemi

07:09  The guidance provides tools and tips that the sector can use to enhance the processes when it comes to verify identity, but also verify mortgage documentation that they would have received. On the next slide, we will be talking about some of why, actually, did FSRA thought that the guidance can support the sector. It is important to talk about regulatory requirement. It is a contravention for a licensee to knowingly or unknowingly give or assist in providing false or deceptive information when conducting mortgage business. FSRA interpret this section as requiring licensees to take a reasonable step to detect and prevent mortgage fraud. The extent of the step that each licensee will take will depend on the specific business model. Depending on the type of clients you service, the type of mortgage product that you offer, you may have more steps or less steps in addition to the regular steps that will be needed to review identity. And this supports FSRA's principle-based approach to supervision. There is no one-size-fits-all when it comes to really meeting your compliance requirement and ensuring that you are not being used to facilitate fraud.

Nadiatou Fagbemi

08:27  The purpose of the guidance is really to clarify legislative business conduct requirement, which aim at preventing the facilitation of dishonesty, fraud, or any other illegal conduct. It also provide common business practices that we've heard from industry that may help the sector in strengthening their own practices. The guidance is skitter, and it's aimed towards mortgage agent, both level 1 and 2, mortgage brokers, including principal brokers, mortgage brokerages, and mortgage administrators. On the next slide, we will be discussing some of the key outcome that the guidance aim to achieve. Essentially, the guidance aim at supporting licensees in meeting their regulatory requirement through fostering a strong conduct culture and also relying on industry-based business practices that pertains to detecting and preventing mortgage fraud. One of the key outcome is really about the important role that the mortgage working sectors play in detecting and preventing mortgage fraud. As we had discussed in the first slide, first-party mortgage fraud represents 54% of all mortgage fraud rates in Ontario.

Nadiatou Fagbemi

09:41  And that is where a person intentionally misrepresent their information in the hope of obtaining a mortgage. There will be high chances that consumers will be working with a mortgage agent or broker, and this is the opportunity for the licensee to really take appropriate steps to review the information and documentation and ensure that the information is as accurate as possible and that they are not being used to facilitate fraud. Another outcome is to ensure compliance of the sector with the Mortgage Broker Regulators' Council of Canada, MBRCC Code of Conduct, which continue to foster strong conduct culture in all aspects, especially in combating mortgage fraud. As you may know, Antoinette Leung, our head of Financial Institution and Mortgage Worker Conduct, is the current chair of MBRCC and along with all the other Canadian jurisdiction, is steadfast and work hard in ensuring that we're reviewing some of the key trend that pertain to the sector and providing support where needed to the licensees. Another outcome is about supporting the sector with the upcoming reporting requirement related to the anti-money laundering and anti-terrorist financing obligation of the proceeds of crime, money laundering and terrorist financing act. And those reporting requirements will become or come into effect actually October 11th of this year.

Nadiatou Fagbemi

11:06  When you go on the side of FINTRAC, the Financial Transaction and Reports Analysis Center, it is indicated that the reporting requirement will impact mortgage lenders, mortgage workers, and mortgage administrators. In the definition of mortgage workers are included mortgage agents and mortgage brokerages. FINTRAC defines mortgage broker as any personal entity that is used as an intermediary between a borrower and a lender for the purpose of securing a mortgage on a piece of real estate property. I just wanted to flag this just for industry to appreciate that it is all parties in this sector that will be impacted by this reporting obligation. Another outcome that FSRA aim to achieve with this guidance is to support information sharing with the regulator and other stakeholders in the sectors. FSRA has a few standing committees, such as the Consumer Advisory Panel, the Stakeholder Advisory Panel, and the Technical Advisory Panel, through which we are able to exchange with members of the industry, learn from them, appreciate the information that is being shared within the sector, and common business practices.

Nadiatou Fagbemi

12:17  We also exchange regularly with licensees. Even through our examination, we do establish some relationship and aim to learn from the different parties and the different licensees. We've also have periodic meetings with the Real Estate Council of Ontario, the Ontario Security Commission, the Mortgage and Title Insurance Industry Association of Canada, and a few various other association and regulator in the sector to ensure that we exchange information and work together into preventing and combating mortgage fraud. Another outcome is the promotion of public confidence in the sector, but also increasing the education and expertise level of our agent and brokers. Last but not least, the guidance really aim into protecting consumers from harms related to financial or emotional loss of their investment funds, their savings, or even their homes. On the next slide, we will be actually talking about something slightly different.

Nadiatou Fagbemi

13:21  During the two consultation, public consultation that we went through with this guidance, we had heard comment and concern from the sectors related to what were FSRA's expectation of mortgage agent brokers, brokerages and administrators in detecting and preventing mortgage fraud. We are going to be talking here about what are not FSRA's expectation of the sector with this guidance. FSRA is not expecting the sector to single-handedly stop mortgage fraud. We are hoping and we are expecting the sector to take appropriate step, reasonable step when it comes to verifying the mortgage documentation and identity provided by consumers when they are dealing and trading in mortgages to ensure that they are not facilitating mortgage fraud. FSRA is also not expecting the sector to act as fraud investigators. This requires a different set of education, and it is not the purpose of this guidance. FSRA is also not expecting the sector to identify all potential fraud activities, let me cross across the decks, when they're reviewing mortgage document.

Nadiatou Fagbemi

14:32  FSRA is also not expecting the sector to guarantee the identity that they would have, identity documentation, actually, that they would have received from the sector when they're looking into mortgage documentation. Finally, FSRA is not expecting the sector to be knowledgeable of all supporting software available in the market, supporting them with verifying identities such as multi-factor authentication. The most important point here is for the sector to be aware of the tools that they can use to help them when it comes to combat mortgage fraud, but also increase and strengthen the practices when it comes to reviewing identity documentation provided for the purpose of obtaining a mortgage. On the next slide, we will be talking about the various enforcement activities related to mortgage fraud. In the next few slides, I will be providing some example on the current case that our legal enforcement department have been working on related to mortgage fraud.

Nadiatou Fagbemi

15:41  Most of the mortgage fraud cases handled by legal enforcement at FSRA comes from our very committed and knowledgeable Compliance and Risk Assessment Unit. And they are typically involved the contravention of Section 43 of the Mortgage Brokerage Lenders and Administrators Act. Subsection 43(1) prohibits mortgage brokerages and mortgage administrators from giving or assisting to give false or deceptive information or document when dealing trading in mortgages in Ontario. Subsection 43(2) prohibits mortgage agents and brokers from doing the same thing. Section 43 imposes a strict liability on licensees. Licensees may therefore ensure that they are taking reasonable steps and have applicable processes in place to verify all information and document that they receive before sharing same with other parties in a mortgage transaction while they're dealing or trading in mortgages in Ontario.

Nadiatou Fagbemi

16:46  Going into the next slide, we will see what are the key type of documents that are typically misrepresented. Those are typically document that pertains to financial information, such as bank statement, employment letters, or pay stubs. And our legal and enforcement department has actually applied Section 43(2) in cases involving submission of altered and fabricated mortgage document by agents and brokers to lenders in support of mortgage application. Those altered documents are typically used to meet mortgage requirements and to show that applicants have sufficient financial wherewithal to be able to obtain a mortgage when in fact they do not. There will be five examples that will be discussed in this presentation, and you will note that the specific name of the agent or broker or brokerage are not indicated on this example. However, under FSRA's transparency of enforcement action, if you were to go on our enforcement page on FSRA's website, you will be able to read in detail the notice of proposals that were issued in all of those cases, and you will have the opportunity to see the names if you are so interested in doing.

Nadiatou Fagbemi

18:00  Going on to the next slide, we'll be talking about the first example. The first example pertains to a mortgage agent, and the case is still pending. FSRA received a complaint from a lender that this agent had been submitting altered bank statements in support of 12 applications. Through its investigation, FSRA actually found that the allegation were correct, and that the financial wherewithal of the client had been represented by up to 100,000. It was also noted that the agent took no steps to confirm the veracity of the statement that they received. Moreover, a third of the agent's deals between January to July 2020 involved altered bank statement. In this case, FSRA issued a notice of proposal, a NOP, to impose a 60,000 administrative monetary penalty, taking into consideration that the agent did not take any reasonable step to verify the statement received, but also considering the sheer volumes of the application and the length of time during which this agent has been identified has been providing altered bank statement to lenders.

Nadiatou Fagbemi

19:18  In the second example on the next slide, we will be talking about a mortgage brokerage and the principal broker. This case is also currently pending. The principal broker and owner of the brokerage sent altered and/or fabricated documents to his clients, the lawyers involved, and also to lenders. The outer documents included an employment letter, a letter of direction, and a top-five bank mortgage commitment. There were evidence in the file that the PB, principal broker, had originally received those documents unaltered, making it very likely that the PB knew of the subsequent alteration and fabrication. FSRA issued a notice of proposal proposing the revocation of the brokerage and the principal broker's licenses and also comments quasi criminal proceedings under the Provincial Offenses Act. And this is considering the egregious nature of the information that we noticed through the investigation.

Nadiatou Fagbemi

20:27  FSRA also issued interim orders suspending the brokerage and the principal broker's licenses to ensure that there were no continuing activities during the time where our enforcement action were taking place. In the next slide, we'll talk about a third example, which pertains to a case that was settled and relate to a mortgage broker. In this case, the broker settled with FSRA and admitted to submitting false and deceptive mortgage documentation, but also to not exercising any specific due diligence prior to submitting those documents. There had been no verification step taken. The mortgage brokers set all to pay a penalty of 7,000, and the notice of proposal that was issued referred to Section 43, subsection 2, which talks about submitting false and deceptive document to a lender in support of a mortgage application. On the next slide, we'll be discussing the fourth example. The case is still pending and pertains to three currently inactive mortgage brokers and agent. There was evidence that all three licensees, or currently not licensed, were brokering and receiving payment outside of their brokerage.

Nadiatou Fagbemi

21:47  FSRA issued a notice of proposal proposing an M for total amounts across all of those three licenses for 740,000, and this was across 15 transactions for receiving remuneration outside of their brokerage, dealing in mortgages while being a license that will be for one of those persons, completing transactions without ever meeting the borrowers, not verifying mortgage documents and ID information received from referral sources, not even from the actual client, but also instructing lenders to send money to bank accounts outside of Canada, into accounts with names that were different than those of the borrowers, and actually were similar to the referral sources relatives. On the next slide, we'll talk about the last example, which case has been completed and relates to a mortgage brokerage and principal broker. The principal broker here relied on unlicensed individual to provide information regarding a borrower. They also took no step to verify the identity of the borrower and failed to take any step to verify the accuracy of the mortgage information provided about the borrower by the unlicensed party and also did not verify the accuracy of the mortgage information provided about the lender, the property, and the borrower's ability to actually make mortgage payment.

Nadiatou Fagbemi

23:16  FSRA issued a notice of proposal to impose a 7,500 administrative monetary penalty, but also required that the brokerage hire an independent consultant that will be reviewing the brokerage internal processes and practices to ensure that they are committed to taking a step to bring them up to compliance with legislation, FSRA rules, and guidance. There are many more examples and cases that our legal and enforcement department worked on. And if you are interested, you can have a look at our enforcement page on FSRA's website. On the next slide, which will be concluding our presentation here, we'll be talking about the key takeaways for the mortgage brokerage sector pertaining to the detecting and preventing mortgage fraud guidance. The first takeaway will be relating to policies and procedures. Mortgage brokerages and mortgage administrators should include in the policies and procedure manual appropriate steps that their licensees and staff must take to detect and prevent mortgage fraud. And this will again be based on the different business model, the type of client that they're servicing, and the type of mortgage product that they are offering.

Nadiatou Fagbemi

24:34  The second takeaway will be about taking appropriate steps to review mortgage documentation. Brokerages, brokers, agent, as well as administrators, must take reasonable step to collect the required documentation that they need for the purpose of dealing, trading, or administering mortgages in Ontario, but also verify the information that they received. Third takeaway will be the important role of the principal worker. Principal worker must ensure that their agent and broker complies and meets the requirement under the Mortgage Brokerage Lenders and Administrators Act. And in doing so, they must ensure that they have proper training and support, but also supervision practices to be able to provide the information needed by the agent and worker to ensure that they do meet their regulatory requirement. Last but not least, reporting. Brokers, including principal broker agents, brokerages, and administrator, should report any potential or identified fraud activities that they noticed to FSRA, but also all applicable parties involved in the mortgage transaction.

Nadiatou Fagbemi

25:50  FSRA has a whistleblower program, and you can find more information on our website that you can use to relate to FSRA instances where you may notice some potential mortgage fraud activities. You can also file a complaint. I would like to take the time to talk about applicable parties involved in the transaction. I have the opportunity to talk with some actors in the mortgage brokering sectors, and they actually told me that in instances where they may have seen potential mortgage fraud in files that they were working on and then declined pursuing working on that file, they took the extra step to actually call title insurers to let them know about this transaction so that if they were at any point to see a similar transaction with a similar address or a similar name being requested from any other areas, that the insurer will be made aware and will have extra due diligence into reviewing the documentation that are provided. This is an example of what the sector can do in sharing information with parties involved within the mortgage brokering sector and combat mortgage fraud.

Nadiatou Fagbemi

27:02  On the next slide, which actually is the end of our presentation, I'm going to turn back to Jennie to see if we have any question from the audience that we can respond to.

Jennie Hodgson

27:18  Hi, Nadia. Thank you so much for that great presentation. A lot of really good information. We do have some folks sending in some questions, and we'll start off with a first question here that talks about best practices to verify identity that you were talking about that are also outlined within the guidance. Wondering if you can explain a little bit and distinguish between verification of ID and guaranteeing ID.

Nadiatou Fagbemi

27:45  Thank you, Jennie. This is a great question. It is a two-part question. So with regards to what are the best practices when verifying ID, it starts with obtaining an ID information. And I think the basic one is to obtain two pieces of ID and the one being a government ID with picture and then a secondary one. It is important to be able to really check the information of that ID, making sure for so that it is valid, making sure that the name is correct, but also checking the name that you have on the ID across all other type of mortgage documentation that you would have received. It could be the letter of employment. It could be the credit bureau, just to make sure there aren't any discrepancies that may raise some concern. In instances where you get a driver license, you can also check the validity of the driver license on the Ministry of Transportation of Ontario websites just to make sure that it is actually a valid piece of identity that is being used.

Nadiatou Fagbemi 

28:46  With regards to the difference between guaranteeing and verifying ID, what FSRA is hoping that the sector will do is to take steps to verify the accuracy of the information received. And that will be through those best business practices we discuss. It's not only about receiving copies of IDs, but also about comparing them with all other mortgage documentation that you would have received. Does it make sense? Are the name the same? Are there any differences that cannot be explained? And if you have question, follow up. And if you have doubts or concern, share those with your principal broker, but also with the lenders involved in the transaction, and all other parties, really.

Jennie Hodgson

29:28  That's great. And so, just to confirm that we're trying to take our best reasonable steps to verify the identity, but we're not in a position necessarily to guarantee that the ID is accurate; is that correct?

Nadiatou Fagbemi

29:43  That is correct, yes.

Jennie Hodgson

29:45  Great. Thank you so much for clarifying there. Next question is about taking appropriate steps and then finding out something else. So what happens if I find out after the documents have gone through me and I didn't notice anything unique or unusual, and I've done my part in ensuring that they haven't been manipulated? What happens if I've submitted those to a lender and then I find out later that those documents provided by the clients had somehow been falsified? What is my liability? Am I in trouble? Are my clients in trouble? What do I do?

Nadiatou Fagbemi

30:22  That is another great question, Jennie. It will happen. It may happen that you may have taken a reasonable step to verify the mortgage information received and verifying the identity information received, and it appeared to be correct at the time. But later on, you have additional information that actually raise concern or may point to potential mortgage fraud being conducted. First of all, it is important to make your principal broker or principal representative if it is a mortgage administrator aware of this situation, but also advise all lenders and parties involved in the transaction. From FSRA's perspective, if we were to be reviewing such a file, if you could demonstrate through your record that you did take appropriate steps at the time with the information that we provided to you to verify the information and then that the additional information you received later on was not part either of the package that you had, this will be able to help provide us with the assurance that appropriate steps were taken and you're not liable for any new information that you may have not know about and that came up later on. But once you are aware of that new information and how it could impact the different parties in a transaction, it is important that you make all parties involved aware of this new information.

Jennie Hodgson

31:47  That's great, thank you. Appreciate that. Now, a few questions here specifically about identity and verifying that. A question here is very specific to meeting of the client. So understanding that I need to receive copies or originals of ID, and I think I heard you mention that best practice recommendation is two pieces of government-issued photo ID if possible. But question is here, do we have to meet our clients in person? Or is virtual meetings or entirely virtual transaction an okay process?

Nadiatou Fagbemi

32:29  Thank you, Jennie, for the question. I think with the era of COVID that we've gone through, there have been quite a few transactions that were completed remote. So this is a practice that is here, and I don't think that that practice will go away anytime soon. I think it may have been helpful for various parties involved. But it also talk about the practices that the sector uses when it comes to verifying the information that they receive. It could be about asking the consumer to send you the information via mail or taking extra steps to verify the information that is received in that case if you cannot obtain original for any given reason. And that comes again about really cross-referencing the information that you receive across different mortgage documents, doing your own due diligence, calling the employer if you need to, doing a drive-by to the property just to make sure it's actually a real one, looking into the purview, checking addresses, any steps that can be taken to really ensure the veracity of the information received is important.

Nadiatou Fagbemi

33:31  If you do have any concern with documentation that you receive, it is important that you flag that to the lenders in the transaction and to any other party that is involved so that they're also aware of some of the limitation that you may have to contend with when you're reviewing the mortgage documentation.

That's excellent. Thanks so much. Here we've got a question here.

Jennie Hodgson

33:49  What do I do if I have-- sorry. What do I do if I would like to report fraud or misrepresentation or concerning dealings, but about my own brokerage? How can I go about bringing that to light to FSRA?

Nadiatou Fagbemi

34:17  This is a great question, thank you. There are many ways that you can bring the information to FSRA. You can file a complaint, but you can also use a whistleblower program, as I was mentioning. This whistleblower program help with ensuring the confidentiality of your identity if you so choose. I do want to flag that there are a few instances where the confidentiality may not be met. That will be, for example, if you decide that you're okay with your name being released, or in cases where FSRA is required by a court or tribunal to provide that information, or if there are any refraction under the Criminal Code of Canada or any other related statutes that FSRA regulates pertaining to the disclosure you would have provided to us. If you really wish to be anonymous, you can ask your lawyer to send in the information on your behalf, which will then really protect your identity and ensure that FSRA does not know. And when we have to release the information, your name will not be involved. But I really want to commend the question that we received. It is not easy for agent and brokers typically to really want to speak up if they notice some kind of fraudulent activity within the brokerage, which may be intentional or not. But it is really important and we do appreciate any information that we received to be able for us to look further into it. It's promote confidence in the sector. It's promote best business practices, increase conduct culture, but also help protect consumers, which is really ultimately what we're all trying to achieve.

Jennie Hodgson

35:54  That's great. Thank you. Appreciate that. And for anyone who is looking for more information on the FSRA whistleblower program, it is available right on the FSRA website. You can check both on the main FSRA website, which should have a link at the top right, or you can also go into the mortgage brokering specific both consumer and industry sections of our website. Next question here brings up an interesting topic with respect to identity verification and connects a lot to that idea of all these virtual transactions. And it says, I noticed in the guidance that multi-factor authentication or MFA is a best practice recommendation. Is FSRA going to be implementing a mandatory requirement for multi-factor authentication?

Nadiatou Fagbemi

36:49  At this time, there isn't such a plan to mandate the use of multi-factor authentication software when it comes to helping the industry verify the entity information that they would have received. So I hope that respond to the question. It is indicated in the guidance that the use of MFAs can support practices that agent and broker will have when they are reviewing mortgage document and verifying identity information received. But that does not remove the requirement from agent and worker to really do their own due diligence. So in cases where they were to say, "Well, I didn't look at the IDs because I relied on an MFA, that will not quite be a fulsome response." But to go back to the question, at this time, there isn't such a requirement to make MFA mandated when it comes to verify identity. But it is a strong and best business practice recommendation if you would like to use it.

Jennie Hodgson

37:57  That's great. Appreciate that. We have a couple of questions that have come in here with respect to ID. So I'm going to do a little bit of a consolidation, make sure I kind of address a few of them. But just want to confirm that the understanding is correct, that the expectation as written in the MBLA Act and its regulations is that brokerages, brokers, agents, and administrators take reasonable steps to verify the identity and the information that is presented to them. And so, with all the news of the anti-money laundering and terrorist financing and the new FINTRAC requirements that will be placed on mortgage brokerages and lenders and anyone in that mortgage lending space, are we changing, at FSRA, our requirements, or do our requirements remain as taking reasonable steps and then it's separate that you have to make sure you're following the FINTRAC rules.

Nadiatou Fagbemi

39:05  That's a good question. Thank you. The requirement under MBLA remains. So sector is required to take reasonable steps to verify the identity of any borrower, lender, investor that will come when they're dealing with trading in mortgages in Ontario. FINTRAC has also some detailed requirement with regards to ID verification. You will note that in the guidance, we do also refer the sector to some of the FINTRAC webpage where they provide a bit more information and guidance on how to verify IDs that the sector can follow when they're trying to strengthen their processes when it comes to reviewing identity. At this time, there aren't any-- I can't speak to any changes that is upcoming. It doesn't mean that there may not be some, but we do believe that the sector can take based on what we have right now the regulated required steps, actually, to really verify the identity and the information that they received. The guidance does provide some key steps and information tools, really, that industry can use to support them in that review of the ID that they received.

Jennie Hodgson

40:21  Excellent, thank you. So if I've understood correctly, what I've heard here is the requirement under the MBLA and its regulations says its reasonable steps. And that's meant to be proportionate and situational. So the reason it doesn't specifically tell you exactly what you need to check in every single situation is because that could be a list that would be hundreds of pages long. So reasonable steps means that you're doing what makes sense based on the information and situation you have. Whereas when we're talking about the new FINTRAC requirements, those are federal requirements that have more specific and prescribed requirements, and any guidance about how to comply with those requirements will come directly from FINTRAC. Is that fair enough to say? Did I understand that right?

Nadiatou Fagbemi

41:13  That is absolutely correct. And I know as you were talking as well, Jennie, I want to flag, again, FSRA's principle-based approach to supervision, right? I think you touched on that. Again, there isn't any one-size-fits-all, so it's difficult to really say this exactly and specifically and only the step that you can take to ensure that you meet this provision. It really depends on your business model and the type of activities that you are conducting.

Jennie Hodgson

41:39  Thank you so much. I appreciate that. We have a question here. It's actually come up once or twice. So in various phrasing here. So I think the one I'll take here says, "Why isn't FSRA doing anything about potential fraud that is detected at banks and bank branches?"

Nadiatou Fagbemi

42:02  Another good question. I think essentially, as we will appreciate, banks do not fall under the purview of FSRA. So it will be difficult for us to take any step. That will be something else the Office of Superintendent of Financial Institution will have the opportunity to take a look at. However, if you were to notice increasing information about mortgage fraud-related activities or whatnot, we will readily share those. We've asked you to make them aware of what the sector is seeing, but FSRA does not have any jurisdiction over banks or banks employees. So we are not able, unfortunately, to take any action on those.

Jennie Hodgson

42:46  That's great. So it's the separation of regulation there. So would that be-- so if I am noticing fraud or fraudulent transactions or concerning practices, and they're happening at the bank and branch level, you would recommend that that be brought up to the bank regulators, OSV, and I'll just take a note to remind participants on the call today that the conduct regulator for the banks is the Financial Consumer Agency of Canada, FCAC, and they do have a lot of information on their website about requirements. So it's not to say that banks don't have similar or more stringent anti-fraud, anti-misrepresentation requirements. It's just a different regulator. So it's not that FSRA's not doing anything, it's that FSRA doesn't have the jurisdiction there. We focus on the mortgage brokering sector. Did I get that right?

Nadiatou Fagbemi

43:43  Absolutely. Thank you, Jennie. Right.

Jennie Hodgson

43:46  So for those lenders that seem like banks in our channel, but are actually regulated through us, that we would look at those comments about those types of lenders and obviously about brokerages, brokers and agents and administrators.

Nadiatou Fagbemi

44:02  Yes.

Jennie Hodgson

44:07  Just taking a look here to see if there's any new questions that have come in. We have here a question about early warning signs with respect to fraud in a transaction. So can you share a few red flags that might help detect or prevent fraud in a mortgage transaction?

Nadiatou Fagbemi

44:31  Sure. That actually is a good question. And we have quite a list actually of potential red flag in the guidance, which I will direct the audience to have a look if you haven't yet have a chance. Some of those red flags may be where the consumers is actually not providing readily information related to the property or related to personal information that you're asking them. They're delayed in providing those information or do not seem quite aware of some of the details that you're asking that pertains to the transaction. Or it could also be instances where you're noticing that the information is slightly different than what you expected or you were reviewing a letter of employment and the job title doesn't match, quite frankly, the salary. There are a few different ways to really wonder and ponder and determine whether or not there are any potential red flags. So some of the ones that comes to mind in addition to those that are in the guidance are really those. It's about really consumer being delayed in providing information, providing document that they should readily have, being insured about some information pertaining to the property in general or asking you to have the mortgage proceed funds sent to a different bank account than the one that would have gone to the borrowers.

Jennie Hodgson

45:56  Okay. And I think we have time here for one more question. And this question is focused on practical examples and steps that brokers and agents can take to identify document fraud. So the question goes on to indicate that many brokers and agents don't have specific experience or expertise as fraud examiners, especially when it's intricate and sophisticated fraud. So the documents will look okay to me, but I'm not the expert. So are there tips and tools that can be shared?

Nadiatou Fagbemi

46:35  That's not a good question. And so the guidance does provide some information, but if I could share some here, it will be when you're getting those mortgage document or you're getting, let's say, an employment letter, just look at the letter. Is it coming on a letterhead? Is it dated? Is it signed? Does it have a return phone number that you can call? Is there any blurry information or the way you're seeing superposed wording? Are there anything odd or different? I had, again, the opportunity to exchange with some mortgage participants, and I think one of them was mentioning that they had received a letter that came from a top-five bank, and it appeared okay. But the logo was different than the logo of the bank, or there were a slight double showing of the logo, which a bank, like one of the top five bank, would have not made in such a letter. So it is in the little information, the little cues that you can try to determine whether or not something makes sense.

Jennie Hodgson

47:40  That's great. So just paying a little bit of extra attention and looking for things that may look just a little bit off, and taking those extra steps. So I think I heard you say before, taking extra steps like validating that letter of employment. A good recommendation I think I've heard as well is a simple Google check of whether it's a borrower or an investor that you're looking to identify. If they work for a company, does that company even exist? I'll date myself and say we used to look in the Yellow Pages, but I'm not sure folks would still know what those are. So a quick Google search is always a good one. And one thing that I can share that seems to be fairly simple, but consistently, we see challenges with this on some of the exams that we do is it's wonderful to collect ID, and it's great to take a photocopy of that ID or to write down the details of that ID and keep it on file. As you're writing it down, you might actually want to take a look at it. There are a lot of times when we see that the ID is actually expired at the time of the transaction. And so that is something-- remember it needs to be valid ID, and valid means that it is not yet expired.

Jennie Hodgson

48:57  So that is something to take a look at. It's important to verify. Now, that's specifically about ID that I'm sharing. But in terms of what you were sharing throughout today is take a look at some finer details of any documentation. Looking at fonts, looking at logos, like you said, looking at job titles, and keeping an eye perhaps on if you have a referral source who has all of the people that they refer happening to be working at the same small business or who have the same manager or the exact same looking salary and letter. So just paying attention to those details. So really appreciate these extra tips and tools that you've provided. And at this time, we will move on to the end of our presentation. And that ends here with, first of all, thank you for everyone who participated in our webinar today. If your question was not answered live, it will be addressed and posted together with a recording of this webinar on the FSRA website by the end of April.

Jennie Hodgson

50:07  And before we go, an important reminder for licensees. March 31st is the deadline to submit your license renewal. Your renewal can only be successfully processed if you've completed your continuing education. And if you happen to be an agent level 2 or broker, you must also have your private mortgages course complete. We also have a breaking news item. Special note today. Check your emails. You'll be receiving a link for the latest mortgage brokering News You Need newsletter that's published on the FSRA website. In that newsletter edition, you're going to see an article specifically about the renewal process and also an article with more information directly from FINTRAC regarding the upcoming changes. On behalf of FSRA, we'd like to thank you very much for your-- sorry, for your participation today, and we wish you a wonderful rest of the day.

Nadiatou Fagbemi

51:06  Thank you.

Slide 1

[LOGOS: FSRA. Financial Services Regulatory Authority of Ontario and the Coat of Arms of Ontario.]

[Blue text appears over a white background.]

[TEXT ON SCREEN: FSRA’s Guidance on Detecting and Preventing Mortgage Fraud. The Important role of the Mortgage Brokering Industry.]

[TEXT ON SCREEN: Date: March 21, 2024. Speaker: Nadiatou Fagbemi, Senior Mortgage Broker Conduct.]

[Nadia Fagbemi and Jennie Hodgson appear in small video windows next to the presentation slides.]

[Host Tracy speaks off camera.]

[Jennie’s video window is on the of the presentation slides.]

Slide 2

[The Land Acknowledgment appears on screen.]

Slide 3

[The agenda slide appears on screen with the following bullet points. 1. Introductions. 2. Land Acknowledgement. 3.Prevalence of mortgage fraud in the current market environment 4. Why did FSRA release a guidance on preventing and detecting mortgage fraud? 5. How does the Detecting and Preventing Mortgage Fraud guidance support the sector? 6. What are the key outcomes FSRA aims to achieve with this Guidance? 7. What are not FSRA's expectations of the sector in taking reasonable steps to detect and prevent mortgage fraud? 8. Enforcement Activities Related to Mortgage Fraud 9. What are the key takeaways for the mortgage brokering sector? 10. Questions?]

Slide 4

[Jennie’s video window disappears. Nadia’s video window remains next to the slides.]

[A new slide appears titled: Prevalence of mortgage fraud in the current market environment. A headline reads: January 23, 2023 - CBC News How organized crime has mortgaged or sold at least 30 GTA homes without owners' knowledge. Future of title insurance could be at risk if this real estate fraud trend continues. Another headline reads: March 31, 2023 - CBC News 'Elaborate scam' leaves seniors with high-interest mortgages they didn't want or understand. A chart is titled: percentage Distribution of fraudulent applications compares Q2 -2022 with Q2-2023 results. Q2 -2022. 2.8% was attributed to other first party fraud. 5.0% was attributed to applications abandoned/declined. 16.3% was attributed to false employment & income. 29.4% was attributed to conflicting information. 46.5% was attributed to falsified financials. Q2 -2023. 5.4% was attributed to other first party fraud. 5.5% was attributed to applications abandoned/declined. 14.5% was attributed to false employment & income. 20.6% was attributed to conflicting information. 54.0% was attributed to falsified financials. A text reads: Frist-party mortgage fraud made up 54% of fraud types in Q2-2023. Another text reads: March 4, 2024, Equifax Canada Market Pulse Fraud Trends report (Q4 2023): Identity fraud has surged (~3/4 of all fraudulent applications across all sectors). 19.9% in mortgage applications fraud (Ontario seeing the highest amount). First-party mortgage fraud remains present. Slight increase in true-name fraud, where a real person's identity is stolen to commit fraud.]

Slide 5

The next slide is titled: Why did FSRA release a guidance on preventing and detecting mortgage fraud? The slide has three bullet points. 1. Ensure financial safety, fairness and choice for Ontarians. 2. Promote high standards of business conduct and protect the rights and interests of consumers by preventing and discouraging deceptive or fraudulent conduct, practices and activities. 3. Protect borrowers, lenders and investors, and licensees from mortgage fraud by providing enhanced processes in identity verification and proper mortgage documentation management. Next to the bullet points are three arrows encircling the words; Vision, Statutory Object and Guidance.]

Slide 6

[The next slide is titled: How does the Detecting and Preventing Mortgage Fraud guidance support the sector? It contains three categories. The first is Intent. It is a contravention for a licensee to knowingly or unknowingly give or assist in providing false or deceptive information when conducting mortgage business. FSRA interprets this section as requiring licensees to take reasonable steps, based on their specific business model, to detect and prevent mortgage fraud. This supports FSRA's principles-based approach to supervision. The second is Purpose. Clarify legislative business conduct requirements to prevent facilitating dishonesty, fraud or any other illegal conduct. Provide common business practices, fraud red flags and reasonable steps to combat mortgage fraud. The third is Scope. Mortgage agents (Levels 1 and 2). Mortgage brokers. Principal brokers. Mortgage brokerages. Mortgage administrators.]

Slide 7

[The next slide is titled: What are the key outcomes FSRA aims to achieve with this Guidance? A text reads: Support licensees in fostering a strong conduct culture by meeting their regulatory requirements and industry best business practices related to detecting and preventing mortgage fraud. The slide contains six points. The first reads: Reinforce the key role that the mortgage brokering sector plays in detecting and preventing mortgage fraud. The second reads: Ensure compliance with the Mortgage Broker Regulators' Council of Canada ("MBRCC") Code of Conduct principles for the mortgage brokering sector to foster continued strong conduct culture in all aspects including combating mortgage fraud. The third reads: Support upcoming anti-money laundering and anti-terrorist financing obligations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act ("PCMLTFA") and its regulations by the sector starting on October 11, 2024. The fourth reads: Support information sharing between stakeholders in the sector (realtors, lawyers, title or default insurers, etc.) and regulators, which is critical in preventing and combating fraud. The fifth reads: Promote public confidence in the sector and a high level of licensee due diligence, expertise and education. The sixth point reads: Protect consumers from harm related to financial and emotional loss of investment funds and/or loss of homes.]

Slide 8

[The next slide is titled: What are not FSRA's expectations of the sector in taking reasonable steps to detect and prevent mortgage fraud? A text reads: Mortgage fraud is costly to consumers and industry alike - Financially and Reputationally. The slide contains five categories. 1.Stop mortgage fraud. 2. Act as fraud investigators. 3. Guarantee identification and mortgage documentation provided. 4. Identify 100% of potential fraud activities. 5. Be knowledgeable of all identity verifications software offered.]

Slide 9

[The next slide is titled: Enforcement Activities Related to Mortgage Fraud. The slide reads: Many of the mortgage fraud cases handled by Legal & Enforcement (L&E), depending on the factual circumstances, involve the contravention of Section 43 of the MBLAA.

• Subsection 43(1) prohibits mortgage brokerages and mortgage administrators from giving, or assisting/including others to give, false or deceptive information or documents when dealing/trading in mortgages in Ontario.
• Subsection 43(2) prohibits mortgage agents and brokers from doing the same.

Section 43 imposes a strict liability on licensees. Licensees must therefore be vigilant and take reasonable steps to ascertain the veracity of all information and documents that are disseminated by them while dealing/trading in mortgages.]

Slide 10

[The next slide is also titled: Enforcement Activities Related to Mortgage Fraud. It reads: L&E has recently applied Section 43(2) in cases involving submission of altered and fabricated documents sent by agents and brokers to lenders in support of mortgage applications. Commonly altered/fabricated documents include bank statements, employment letters, and pay stubs. The altered/fabricated documents are used to meet mortgage commitment requirements and to show that mortgage applicants had sufficient down-payment funds. An image shows a small house casting a show of a much larger house.]

Slide 11

[The next slide is also titled: Enforcement Activities Related to Mortgage Fraud. The slide reads: Example 1 (Pending): Mortgage Agent. FSRA received a complaint from a lender that the agent submitted altered bank statements in support of 12 applications. FSRA's investigation found the allegations to be correct and that the alterations misrepresented client funds by up to $100,000. The agent took no steps to confirm the veracity of the statements. Moreover, 1/3 of the agent's deals between January-July 2020 involved altered bank statements. FSRA issued a Notice of Proposal ("NOP") to impose a $60,000 Administrative Monetary Penalty ("AMP"), taking into account that the agent did not take reasonable steps to verify the statements received and the volume of the misleading information received and shared.]

Slide 12

[The next slide is also titled: Enforcement Activities Related to Mortgage Fraud. The slide reads: Example 2 (Pending): Mortgage Brokerage / Broker and Principal Broker. The Principal Broker ("PB") and owner of the brokerage sent altered and/or fabricated documents to his clients, lenders, and clients' lawyer. The altered/fabricated documents included an employment letter, a letter of direction and a Top 5 Bank Mortgage Commitment. There was evidence that the PB had received unaltered versions of some of the documents from his client, making it likely that the PB knew of the alteration/fabrication. FSRA issued an NOP proposing revocation of the brokerage and the PB's licences and commenced quasi-criminal proceedings under the Provincial Offences Act. FSRA also issued interim orders suspending the brokerage and the PB's licences.]

Slide 13

[The slide is also titled: Enforcement Activities Related to Mortgage Fraud. The slide reads: Example 3 (Settled): Mortgage Broker. FSRA issued an NOP to the Broker proposing to impose penalties for, among other things, contravening 43(2) by submitting false and deceptive documents to a lender in support of a mortgage application. The Broker settled with FSRA and admitted to sending the false and deceptive documents. The Broker also admitted to not exercising due diligence prior to submitting the documents. In addition to admitting to the contravention, the brokerage settled to pay an AMP of $7,000.]

Slide 14

[The next slide is titled: Enforcement Activities - Mortgage Fraud. The slide reads: Example #4 (Pending): 3 Inactive Mortgage Brokers and Agents. There was evidence that all three licensees were brokering and receiving payments outside of the brokerage. FSRA issued an NOP proposing a total AMPs of $740,000 (15 transactions) for:

• Receiving remuneration outside of their brokerage.
• Dealing in mortgage while being unlicensed.
• Completing transactions without meeting borrowers.

Not verifying mortgage documents and identification received from referral sources.

• Instructing lenders to send money to bank accounts outside of Canada, into accounts with different names than those of the borrowers and that were related to the referral source's relatives. An icon on the bottom of the slide shows two hands exchanging money.]

Slide 15

[The next slide is also titled: Enforcement Activities - Mortgage Fraud. The slide reads: Example #5 (Completed): Mortgage brokerage and Principal Broker. The Principal Broker (PB) relied on an unlicensed individual to provide information regarding a borrower. FSRA issued an NOP to impose a $7,500 AMP and required the hiring of an independent consultant by the mortgage brokerage (1 transaction). No steps were taken to verify the identity of the borrower. Failed to take any steps to verify the accuracy of the mortgage information provided about the borrower, lender, property and the borrower's ability to pay the mortgage. Failed to meet with the lenders in respect of this transaction; and failed to obtain a signed Form 1 from the lenders. An icon shows silhouetted figures asking questions.]

Slide 16

[The next slide is titled: What are the key takeaways for the mortgage brokering sector? Outcomes. There are four outcomes. The first. Policies & Procedures (P&P). The P&P of a brokerage or administrator should include the steps licensees and their team must take to detect and prevent mortgage fraud, with key considerations to their unique business model, supporting FSRA's principles-based regulatory approach. The second. Mortgage Documentation. Brokerages, brokers and agents, as well as administrators must take reasonable steps to collect required documentation and verify documents received. The third. Principal Broker Role. Principal brokers must train, support and supervise brokers and agents to ensure compliance with MBLAA and regulations and applicable FSRA Guidance and Rules. The fourth. Reporting. Brokers (including principal broker), agents, brokerages and administrators should report potential or identified fraud activities to FSRA and applicable parties involved. See FSRA's Whistle-Blower program for more information.]

Slide 17

[A slide reads: Questions?]

[Jennie’s video window reappears.]

Slide 18

[The ‘Question’ slide disappears. Jennie and Nadia’s video windows expand to the center of the screen.]

[Nadia smiles and nods her head in agreement.]