B.C. brokers urge a rethink of planned MIC regs

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MBABC is asking the securities commission to rethink how it will regulate MICs in B.C.

“MBABC urges that the BCSC not implement the proposal contained in BC Notice 2013/01 in relation to MICs, and that it explore other regulatory solutions to regulating MICs such as an improved OM exemption,” said the association’s CEO, Samantha Gale, in a letter to the commission. “Recognizing that MICs are fundamentally different from any other investment vehicle regulated by BCSC by virtue of their extensive current regulation by the Canada Revenue Agency and the Registrar of Mortgage Brokers, we believe that it may be appropriate to bring back the OM exemption for MICs.”

MICs in the pacific coast province were already regulated under B.C.’s Mortgage Brokers Act, and although those rules largely focus on broker obligations to borrowers, they do regulate the sale of certain mortgages to investors.

In a January notice inviting industry comment, MortgageBrokerNews.ca reported that the province's securities commission pointed to three reasons for revoking key exemptions to National Instrument 31-103:

“(a) The impact on capital-raising will be negligible,” concludes the commission, “(b) those relying on the exemptions are not complying with its investor protection conditions; and (c) private placement market investors will be better protected if they purchase securities through registrants.”

Although the BCSC is asking that the proposed changes be reworked, it does concede that plainer language of the Offering Memorandum is needed.

“The OM could be improved, drafted in plain English with better disclosure of the risks and previous returns of mortgage pools, details of mortgage investments and rigorous disclosure of MIC compensation, fees and operating expenses,” writes Gale. “In addition, there could be conditions attached to the use of the OM exemption which could curb predatory practices against vulnerable sectors of society, such as a condition that the investor have a certain dollar-value net worth or that some investors not be permitted to use leverage to acquire shares.”

NI 31-103 officially came into force in 2009, focused on streamlining registration requirements and exemptions for securities dealers and advisors across the country. At the same time the federal instrument imposed new registration requirements for investment fund managers.

Although most of the Instrument applies uniformly to all jurisdictions, provinces differed in key areas, with some opting to exempt MICs and syndicates as a way of avoiding any duplication of oversight.

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