FSCO panel calls for more stringent syndicated mortgage regulation

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An independent panel of experts is calling for syndicated mortgages to be regulated in the same manner as securities.

“The government should require that documents issued to raise capital for syndicated mortgage investments be subject to the same level of regulation as the securities regulator applies to other offering documents used to raise capital in the province,” a FSCO report, entitled Review of the Mandates of the Financial Services Commission of Ontario, Financial Services Tribunal, and the Deposit Insurance Corporation of Ontario, says.

The report features the findings of panel members George Cooke, former president and CEO of The Dominion of Canada General Insurance Company, James Daw, former Toronto Star personal finance columnist, and lawyer Lawrence Ritchie.

The three were appointed by the Minister of Finance in 2015 to review three agencies; the Financial Services Commission of Ontario (FSCO), the Financial Services Tribunal (FST), and the Deposit Insurance Corporation of Ontario (DICO).

They released their findings -- which include the recommendations for syndicated mortgage regulation -- in the 92 page report, which can be accessed here.

“During our review, we became concerned with what appears to be a regulatory gap regarding syndicated mortgages,” the report says. “All companies involved in raising money for property development through the sale of syndicated mortgages to small investors should be actively monitored to ensure compliance with relevant legislation and regulations in a manner that is consistent with the level of oversight and scrutiny applied by securities regulators.”

Due to the complexities of syndicated mortgages, the report reads, regulation would be best handled by the securities regulator.

“This would best ensure a consistent application of disclosure requirements across products and investments seen by investors as comparable,” the report says.

The recommendation comes on the heels of growing calls from many industry professions for more stringent regulation for these increasingly popular investments.
 
  • Ron Butler on 2016-06-21 2:17:51 PM

    The time has come to move the sale of syndicated mortgages from FSCO and place the product under the auspices of the OSC.

    It is no longer appropriate that this type of capital creation vehicle be sold as a mortgage under FSCO rules. FSCO has done their best to try to craft disclosure and monitor the sales and marketing of the product but clearly it is time to suspend the sale of syndicated mortgages through FSCO until such time as the OSC can expand it's mandate to include these products.

    We need the higher level of consumer protection and disclosure on this file that only the OSC can provide and it is important to make this change right now, before hundreds of millions in additional transactions are processed.

  • David Franklin on 2016-06-21 2:22:58 PM

    This story was reported on in the Toronto Star
    https://www.thestar.com/business/2016/06/20/ontario-urged-to-boost-financial-protection-for-consumers.html
    FSCO failed to honour its mandate to protect the public interest in spite of having the legislation that enabled it to stop the improper sales of syndicated development mortgages.
    The question is why did FSCO not enforce the law.

  • David Franklin on 2016-06-21 4:57:22 PM

    I submit that the FSCO documents are "in English" and are easier to understand than a securities offering document. The problem is one of enforcement. If the new regulator hired competent staff and was proactive in learning what was being marketed, the public would be better served.

  • Keith Prosser on 2016-07-07 2:17:57 PM

    Completely agree with Ron Butler's comment on this topic

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