Exclusive Q&A with FSCO about syndicated mortgage regulation

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In late January, FSCO and the Mutual Fund Dealers Association of Canada (MFDA) clarified their position on syndicated mortgages in a joint statement, and we spoke with FSCO about regulations for the popular investment option.
“In situations where an Approved Person is dually licensed, the MFDA requires compliance with the requirements of both regulators. In this case the regulators are the MFDA and the Financial Services Commission of Ontario (FSCO),” the joint release states. “The MFDA and FSCO are sending this joint communication to MFDA Members in Ontario to clarify our shared view.”

Below is a Q&A between a FSCO representative and MortgageBrokerNews.ca.

MBN: What pre-empted the decision to get together with the MFDA to issue this notice?
FSCO: FSCO and the MFDA issued the joint bulletin to clarify our shared view. 

In November 2013, the MFDA issued a bulletin to remind mutual fund dealers that sales of syndicated mortgage investments by dually licensed mutual fund salespeople/mortgage agents or brokers should be conducted through the account and facilities of the mutual fund dealer. By doing this, the mutual fund dealer is dealing or trading in mortgages and is required by the Mortgage Broker Lenders and Administrators Act (MBLAA) to be licensed as a mortgage brokerage by FSCO.

MBN: How will it better protect consumers?
FSCO: The MBLAA’s requirements for mortgage brokerages overseeing mortgage transactions are designed specifically to protect consumers involved in mortgage transactions. To become licensed as a mortgage brokerage, mutual fund dealers will be required to comply with these consumer protection requirements.

MBN: Does FSCO believe there should be tighter regulations for providing syndicated mortgages?
FSCO: The MBLAA already requires that brokerages provide potential investors with information they need to make informed decisions about whether to invest in syndicated mortgages. For example, the MBLAA requires that brokerages take reasonable steps to ensure the mortgage investment that they recommend is suitable for the investor, taking into account the investor’s needs and circumstances.

The MBLAA also requires brokerages to advise a client of the material risks of the investment and disclose information about the investment including: potential conflicts of interest; information about the property, mortgage, and borrower; an appraisal of the property; and documentary evidence of the borrower’s ability to meet the mortgage payments.

Part of the brokerage’s duty to ensure suitability when dealing in syndicated mortgage investments, and this includes doing its proper due diligence in examining the developers and promoters, the investment property, and the risks of the investment.

For more information on additional compliance requirements, please visit our website.

MBN: Are there any plans to further clarify how they should be regulated?
FSCO: If necessary, there will be further clarification. FSCO will continue monitoring the marketplace and taking action as required.


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