Summary of stakeholder comments

Support for the proposed new licensing requirements

• stakeholders indicated general support for the proposed new licensing requirements:
  • CAPL noted, “We wholly support the goals of the Ministry of Finance and the Authority to protect consumers of private mortgage transactions by creating required specialized education and practice standards for private mortgages through the deployment of new licensing categories”
  • MPC noted “we are supportive of the objectives your proposed changes aim to deliver, and are generally supportive of the proposed new licensing classes, Mortgage agent level 1 (MAL 1), Mortgage agent level 2 (MAL 2), and Mortgage broker licence (MBL), as posted by FSRA”
  • MTIIAC also agreed with the “necessity to ensure that the different categories of lending, as well as the risks and benefits associated with them, be well understood by those working directly with and advising borrowers”

We thank the stakeholders for their support.

Effectiveness of new licensing classes in addressing private lending risks

• multiple licensing categories will not help resolve problems surrounding the private lending space
• private lending covers a wide spectrum of transactions and is already heavily regulated within the brokering industry

Stakeholder feedback received during the 2019 Mortgage Brokerages, Lenders and Administrators Act, 2006 (“MBLAA”) Review process indicated that licensees working with private mortgage lenders and raising capital require a specific set of competencies, which should be reflected in the licensing and education requirements.

The licensing classes include enhanced requirements that address the need for level 2 mortgage agents and brokers to have additional education, knowledge and experience regarding private mortgages. This will help ensure licensees have the appropriate expertise to recommend products that meet consumers’ needs, and that reasonable steps are taken to properly understand, assess and inform consumers of any potential risks associated with private mortgages or mortgage investments.

The new requirements support the following outcomes:

• education/competency requirements that better align with activities in the mortgage market
• enhanced consumer protection as borrowers and lenders/investors receive appropriate levels of information and recommendations to make informed decisions relevant to their mortgages/mortgage investments
• enhanced confidence in the mortgage brokering industry as licensees are prepared for their career in the mortgage brokering sector

Licensing classes

• the licence classes should not be separated, a broker should be able to service all needs of a client
• the licensing classes will not prevent the mortgage agent level 1 from soliciting and advising consumers on private mortgages

Under the new licensing classes mortgage brokers must complete the new education requirement, allowing them to service all the needs of a client (e.g., mortgage from a financial institution, Canada Mortgage and Housing Corporation (“CMHC”) approved lender under the National Housing Act (“NHA”) or private lender).

Page 5 and Appendix 1 of the guidance describe how level 2 mortgage agents and brokers can engage level 1 mortgage agents in private mortgage transactions for training purposes. The mortgage agent level 2 and/or the mortgage broker are accountable to clients for these transactions.

FSRA expects brokerages and their principal brokers to put in place processes and controls to ensure their brokers and agents are acting within the scope of activities allowed by their licence. FSRA will, through supervision, assess the effectiveness of those processes and controls.

Types of lenders by licensing class

• Mortgages funded by a Mortgage Investment Corporation (MIC) should not be characterized as ‘private lending’ since the MIC, through its normal operations, manages the investor relationships and ensures diversification of fund placements in mortgage investments on the investors’ behalf. Many of the risks associated with private lending that the education and certification through the introduction of the Mortgage Agent Level 2 are intended to address are not present with MIC loans.
• Agent level 1 lenders could also include private lenders approved by private default mortgage insurers captured under the Protection of Residential Mortgage or Hypothecary Insurance Act (“PRMHIA”).
• There is a potential discrepancy in the description of the mortgage agent level 1 licence provided in the guidance compared to the description provided in section 5.01(3)(1) of the draft proposed amendments to Ontario Regulation 409/07. That is:
  • the regulation states that mortgage agents level 1 are permitted to deal or trade in mortgages exclusively with lenders that are financial institutions or that are approved lenders under the National Housing Act
  • the guidance states that mortgage agents’ level 1 are permitted to deal or trade in mortgages provided by financial institutions and CMHC-approved lenders 

Mortgage agent level 1 licence authorizes licensees to deal and trade in mortgages exclusively with lenders that are:

• financial institutions, as defined in section 1 of the MBLAA
• approved by CMHC under the NHA

This approach to categorization of lenders is transparent and efficient. Lists of financial institutions and NHA-approved lenders are publicly available. Entities must meet strict criteria defined under federal statute to qualify as a financial institution or NHA-approved lender. These criteria include strong underwriting guidelines.

The underwriting guidelines of mortgage investment entities (MIEs) that include Mortgage Investment Corporations (MICs) vary and are not readily obvious. Private mortgages should be transacted by licensees with appropriate competencies given that these types of mortgages may not be underwritten in the same way as those offered by financial institutions and NHA lenders and may have terms and conditions that pose unfamiliar risks to consumers.

The guidance has been amended to provide a description of the mortgage agent level 1 licence that aligns with the description provided in section 5.01(3)(1) of the draft proposed amendments to Ontario Regulation 409/07.

Private Mortgages Course

• The additional training in private lending should not be done as a separate licensing class but should be added to the curriculum of the Mortgage Agent Course. If the initial course is much more rigorous and functional, it may alleviate a lot of the issues.
• The current broker course is geared towards the role of the Principal Broker and how to start a brokerage and does not cover what most people taking the broker course plan to do. The licensing course should be categorized as follows:
  • Agent: An updated agent course that includes more practical elements (application submissions, more case studies, etc.)
  • Broker: Private lending, MIC, and mentor/training agents
  • Principal Broker: Starting a brokerage
• the mandated curricula should include up to date information about the heightened risk of fraud attempts through a private lender, as compared to a traditional lender, ID verification best practices and due diligence requirements and best practices to detect red flags

The government directed FSRA to raise and streamline educational and professional standards for agents and brokers, consistent with Recommendation #5 of the MBLAA Review Report.

FSRA is taking a strategic, holistic approach in achieving this goal, which includes achieving the objectives for the new licensing classes – that the classes reflect unique practices of different segments of the mortgage market, while minimizing regulatory burden for those dealing and trading in traditional mortgages. In balancing these goals and objectives, FSRA has and is taking the following steps:

• in recognition that all of industry will benefit from an enhanced understanding of private lending, for the April 1, 2022, licensing cycle, the continuing education curriculum included private lending
• in November 2021, FSRA adopted the Mortgage Broker Regulators’ Council of Canada’s (MBRCC) Education and Accreditation Standards. FSRA has recently completed its review to ensure education providers courses meet the MBRCC standards
• FSRA has actively been working with other members of the MBRCC to update the MBRCC’s Competencies and Curriculum for Mortgage Agents and Brokers which will be implemented in Ontario
• the MBRCC is committed to reviewing its Education and Accreditation Standards and Competencies and Curriculum on a regular basis

The new Private Mortgages Course will align with the MBRCC Private Lending Competencies and Curriculum. The course outcome is to enhance licensees’ knowledge about the regulatory framework, transaction processes, and risks associated with private mortgages.

FSRA will take into account the feedback received as part of the consultation when approving the new Private Mortgages Course and reviewing the agent and broker curriculums.

Challenge Exam

• The deadline to take the Challenge Exam should be earlier than the final date to complete the new education requirements. With this approach licensees will have time to take the Private Mortgages Course in the event that they fail.
• Another option is to extend the completion dates for completion of both the Private Mortgages Course or Challenge Exam. 

Based on this feedback, FSRA has revised the deadline for eligible candidates to write the Challenge Exam to October 31, 2023, from March 31, 2024. The Challenge Exam may only be attempted once; individuals who do not pass the Challenge Exam must complete a Private Mortgages Course.

Requests for grandparenting provisions

• There should be grandfathering/exemption rules for those who are already licensed as mortgage brokers and agents for at least 5 or 10 years.
• The current Level 2 status of all brokers and agents should be appropriately recognized and brokers and agents should, accordingly, be viewed as “grandfathered” into Level 2 licensing. FSRA can ensure that current grandfathered licensees are brought up to speed on private lender issues at the time of renewal through mandatory continuing education.

In implementing the new licensing classes, FSRA is ensuring alignment with its statutory objects which include promoting high standards of business conduct and protecting the rights and interests of consumers. In so doing, FSRA wants to ensure that all licensees dealing in and trading in private mortgages meet the competency requirements.

In recognition that many industry participants have the competencies and experience in private mortgage transactions, individuals who have five or more years of continuous licensing experience have the option to write a FSRA-accredited Private Mortgages Course Challenge Exam rather than completing the Private Mortgages Course.

Request for clarity on labour mobility

• a stakeholder noted that the inclusion of guidance on how licences issued by other Canadian jurisdictions are to be accommodated by Ontario’s new tiered system is entirely appropriate

The requirements for individuals licensed in a Canadian province or territory outside of Ontario applying for a licence in Ontario will be posted on the FSRA website in the near term.

Concerns regarding the licensing exemptions for bank employees

• banks should not continue to be exempted from the licensing requirements.
• the province needs to consider greater oversight of employees of federally regulated financial institutions who place mortgage products with entities other than their employer, as consumers are not clearly protected under either the Bank Act or MBLAA

Recommendation #4 in the MBLAA Review Report recommended that current licensing exemptions under the MBLAA be maintained. The recommendation noted:

“[W]e received feedback, both positive and negative, regarding the licensing exemption for employees of financial institutions. Financial institutions that are exempt from licensing under the MBLAA are regulated under other statutes, both federal and provincial, with respect to their mortgage activity, as well as their overall operations as they relate to market conduct. Removing this exemption would create regulatory overlap and duplication that could increase costs and reduce choices for consumers, which would not be consistent with the objectives of this legislative review. However, the Ministry of Finance should engage in discussions with the Financial Consumer Agency of Canada (FCAC) to ensure that consumers are receiving consistent treatment whether they receive their mortgage from a provincially-regulated mortgage broker/agent or from a federally-regulated bank employee.”

Other comments outside of the scope of this initiative

• Cyber threat and terror are current threats but overlooked major component of the mortgage industry. Mortgage brokers and administrators need to learn how to assess the elements of a cyber breach and determine a response plan and compare outcomes.
• action is required to stop private funding by private non-licensed agents
• It is time that oversight and education requirements be extended to MIC managers and employees. MIC employees that have direct contact with investors and borrowers and/or make decisions related to policies and procedures of the MIC should be licensed or be required to at minimum take the same education and licensing prerequisites as level 2 mortgage brokers and agents.

In April 2022, the Mortgage Broker Regulators’ Council of Canada (MBRCC) published draft cybersecurity preparedness guidance for public consultation. The guidance outlines principles intended to help mortgage brokers better protect their clients’ digital information. In conjunction with this release, FSRA consulted on guidance proposing to adopt the MBRCC cybersecurity preparedness guidance into its regulatory framework.

Transactions conducted by licensed agents and brokers offer protection to individual consumers. If FSRA suspects unlicensed activity, it has the power to: 

• request and/or make inquiries and conduct examinations of the business and activities of the person or entity
• apply to the courts for an order to inspect the business premises of the person or entity
• issue a summons order to produce information under oath to determine whether a person or entity is complying with a requirement established under the MBLAA  
• issue a compliance order to a person or entity to cease committing an act or pursuing a course of conduct or perform such acts that are necessary to remedy the non-compliance with the MBLAA
• issue an order to freeze assets to a person or entity that has not complied with a compliance order
• issue an administrative monetary penalty to promote compliance with the MBLAA, or to prevent a person or entity from benefiting economically, directly, or indirectly, as a result of contravening or failing to comply with MBLAA requirements

FSRA does not have authority under the MBLAA to regulate the management of mortgages by MIC managers.

Where a MIC lends directly to borrowers, it must be licensed as a mortgage brokerage and be regulated by FSRA as such. Where a MIC lends or trades mortgages through a third-party, that third-party must be licensed as a brokerage with FSRA.

The distribution of MIC units/shares and related interaction with investors are under the Ontario Securities Commission’s jurisdiction.