Mortgage Brokerages, Lenders and Administrators Act, 2006 - Additional Draft Regulations for Consultation

III. Consultation Draft Regulations

1) Mortgage Brokerages: Standards Of Practice

under the

MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT, 2006

Note:  This is a draft regulation for discussion purposes.  The Mortgage Brokerages, Lenders and Administrators Act, 2006 is not in force.

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CONTENTS

Interpretation

1. Definitions
2. Designated classes of lenders and investors
3. Duties re syndicated mortgages

Standards Of Practice

4. Standards of practice

Public Relations

5. Use of authorized name
6. Use of name, etc., in public relations materials
7. Duty to provide licence information
8. Complaints by the public

Customer Relations

9. Duty to verify borrower’s identity
10. Duty to verify lender’s identity
11. Duty to verify investor’s identity
12. Duty re unlawful transactions
13. Duty re borrower’s legal authority
14. Duty re accuracy of mortgage application
15. Restriction re tied selling
16. Restriction re guarantees
17. Duty to return certain documents

Information About the Brokerage

18. Disclosure re role of brokerage
19. Disclosure re lender as major customer
20. Disclosure re business relationship with lenders

Information about Fees and Other Payments

21. Representations re status of payments
22. Fees, etc., payable by the customer
23. Fees, etc., payable by others
24. Fees, etc., payable by the brokerage to others
25. Fees, etc., for referral by brokerage

Duties in Particular Transactions

26. Duty re suitability of mortgage for customer
27. Disclosure of risks
28. Disclosure of brokerage’s relationships
29. Disclosure of potential conflicts of interest
30. Duty re mortgage previously in default
31. Duties re reverse mortgages
32. Disclosure form, etc., re mortgages
33. Disclosure form, etc., re mortgage renewals

General Requirements for Disclosures

34. Clarity of disclosure, etc.
35. Disclosure based on estimate, etc.
36. Deadline for disclosures to borrowers
37. Deadline for disclosures to investors

Payments by Borrowers, Lenders, Investors

38. Payment by borrower
39. Payment, etc., by lender or investor
40. Receipt for deemed trust funds

Managing the Brokerage

41. Duty to establish policies and procedures
42. Duty to establish complaints process
43. Duty to have insurance
44. Duty re authorization of brokers, agents
45. Restrictions on payments by brokerage
46. Required records
47. Security of records
48. Records retention

Managing Deemed Trust Funds

49. Deemed trust funds
50. Authorized trust account
51. Administration of trust account
52. Record of trust account transactions
53. Monthly reconciliation statement for trust account
54. Duty to report shortfall in trust account
55. Annual reconciliation statement for trust account

Other Matters

56. Duty re concurrent businesses
57. Use of certain information
58. Designation when dwelling is place of business
59. Required addresses
60. Use of forms

Interpretation

Definitions

      1.  In this Regulation,

“authorized name” means, in relation to a brokerage, any name in which the brokerage is licensed;  

“authorized trust account” means, in relation to a brokerage, its mortgage brokerage trust account established in accordance with section 50;  

“business day” means a day that is not a Saturday or holiday within the meaning of section 87 of the Legislation Act, 2006;

“deemed trust funds” means, in relation to a brokerage, money that is deemed by section 49 to be held in trust by the brokerage;

“investor” means a person or entity who makes an investment in a mortgage through the purchase or exchange of a loan or an interest in a loan on the security of real estate;

“trade completion date” means, in relation to a mortgage, the earlier of,

  1. the date on which an investor, or a brokerage on behalf of an investor, enters into an agreement to trade in the mortgage, or
  2. the date on which the trade in the mortgage is completed.
Designated classes of lenders and investors

      2.  (1)  For the purposes of this Regulation, a person or entity is a member of a designated class of lenders and investors if the person or entity is a member of any of the following classes:

  1. The Crown in right of Ontario, Canada or any province or territory of Canada.
  2. A brokerage acting on its own behalf.
  3. A financial institution.
  4. A corporation that is a subsidiary of a person or entity described in paragraph 1, 2 or 3.
  5. A corporation that is an approved lender under the National Housing Act (Canada).
  6. An administrator or trustee of a registered pension plan within the meaning of subsection 248 (1) of the Income Tax Act (Canada).
  7. A person or entity who is registered as an adviser or dealer under the Securities Act when the person or entity is acting as a principal or as an agent or trustee for accounts that are fully managed by the person or entity.
  8. A person or entity who is registered under securities legislation in another province or territory of Canada with a status comparable to that described in paragraph 7 when the person or entity is acting as a principal or as an agent or trustee for accounts that are fully managed by the person or entity.
  9. A person or entity, other than an individual, who has net assets of at least $5 million as reflected in its most recently-prepared financial statements and who provides written confirmation of this to the brokerage, in a form approved by the Superintendent.
  10. An individual who, alone or together with his or her spouse, has net assets of at least $5 million and who provides written confirmation of this to the brokerage, in a form approved by the Superintendent.
  11. An individual who, alone or together with his or her spouse, beneficially owns financial assets (being cash, securities within the meaning of the Securities Act, the cash surrender value of a life insurance contract, a deposit or evidence of a deposit) that have an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1 million and who provides written confirmation of this to the brokerage, in a form approved by the Superintendent.
  12. An individual whose net income before taxes in each of the two most recent years exceeded $200,000 or whose net income before taxes in each of those years combined with that of his or her spouse in each of those years exceeded $300,000, who has a reasonable expectation of exceeding the same net income or combined net income, as the case may be, in the current year and who provides written confirmation of this to the brokerage in a form approved by the Superintendent.
  13. A person or entity in respect of which all of the owner or interests, other than the owners of voting securities required by law to be owned by directors, are persons or entities described in paragraphs 1 to 12.

      (2)  In this section,

“spouse” means spouse as defined in section 29 of the Family Law Act.

Duties re syndicated mortgages

            3.  If there is more than one lender under a mortgage or if there is more than one investor who makes an investment in a mortgage, a brokerage owes to each of the lenders or investors the duties imposed by this Regulation in respect of the mortgage or investment.

Standards Of Practice

Standards of practice

             4.  The requirements set out in this Regulation are prescribed as standards of practice for every brokerage licence that is issued under the Act.   

Public Relations

Use of authorized name

      5.  A brokerage shall not carry on business in a name other than its authorized name.  

Use of name, etc., in public relations materials

      6.  (1)  A brokerage shall disclose its authorized name and its licence number in all of its public relations materials and the name and number must be clearly and prominently disclosed.

      (2)  If the authorized name of a brokerage is, or includes, a franchise name that the brokerage is permitted to use under a franchise agreement, the public relations materials must clearly indicate that the brokerage is independently owned and operated.

      (3)  If, in its public relations materials, a brokerage identifies a broker or agent by name, the brokerage shall use the name in which the broker or agent is licensed and the materials must also disclose his or her licence number.
 
      (4)  If, in its public relations materials, a brokerage refers to a broker or agent, the materials must include at least one reference to the broker or agent that includes one of the following titles:

  1. When referring to a broker, the title “mortgage broker”, “broker”, “courtier en hypothèques” or “courtier”, an abbreviation of any of those titles or an equivalent title in another language.
  2. When referring to an agent, the title “mortgage agent”, “agent” or “agent en hypothèques”, an abbreviation of any of those titles or an equivalent title in another language.

      (5)  In this section,

“public relations materials” means, in relation to a brokerage,    

  1. any advertisement by the brokerage that is published, circulated or broadcast by any means, or
  2. any material that a brokerage makes available to the public in connection with its business as a brokerage.
Duty to provide licence information

       7.  Upon request, a brokerage shall give to a person the licence number of the brokerage and the name and licence number of any broker or agent who is authorized to deal or trade in mortgages on behalf of the brokerage.  

Complaints by the public

      8.  (1)  If a person makes a complaint to the brokerage in writing about the mortgage business activities of the brokerage or of any broker or agent authorized to deal or trade in mortgages on its behalf, the brokerage shall give the person a written response to the complaint setting out the brokerage’s proposed resolution of the complaint.  

(2)  The written response must also tell the person who made the complaint that, if the person is not satisfied with the proposed resolution and if the person believes that the complaint relates to a contravention of the Act or a regulation, the person may refer the complaint to the Superintendent.

 

Customer Relations

Duty to verify borrower’s identity

      9.  (1)  A brokerage shall take reasonable steps to verify the identity of each borrower before submitting the borrower’s mortgage application to a prospective lender or arranging for a mortgage renewal agreement with a lender, and the brokerage shall advise each lender if it is unable to do so.  

      (2)  Subsection (1) does not apply if the lender is otherwise required by law to verify the borrower’s identity.

      (3)  If the brokerage itself is the prospective lender, the brokerage shall take reasonable steps to verify the identity of each borrower for each mortgage loan that it makes or renews.

Duty to verify lender’s identity

            10.  A brokerage shall take reasonable steps to verify the identify of each mortgage lender before the borrower enters into a mortgage agreement or signs a mortgage instrument or a mortgage renewal agreement, as the case may be, with the lender and the brokerage shall advise the borrower if it is unable to do so.  

Duty to verify investor’s identity

      11.  (1)  A brokerage shall take reasonable steps to verify the identity of each investor in a trade in mortgages before the trade completion date.

      (2)  Subsection (1) does not apply with respect to an investor if another brokerage is acting as a representative of the investor in the trade.   

Duty re unlawful transactions

      12.  A brokerage shall not act for a borrower, lender or investor in respect of a mortgage if the brokerage has reasonable grounds to believe that the mortgage, its renewal or the investment in it is unlawful.    

Duty re borrower’s legal authority

      13.  If a brokerage has reason to doubt a borrower’s legal authority to mortgage a property, the brokerage shall so advise each prospective lender at the earliest opportunity.

Duty re accuracy of mortgage application

      14.  If a brokerage has reason to doubt the accuracy of information contained in a borrower’s mortgage application or in a document submitted in support of an application, the brokerage shall so advise each prospective lender at the earliest opportunity.

Restriction re tied selling

      15.  (1)  A brokerage shall not coerce a borrower, lender or investor to obtain a product or service from a particular person or entity, including the brokerage, as a condition for obtaining another service from the brokerage.

      (2)  For the purposes of subsection (1), a brokerage does not coerce a borrower, lender or investor, as the case may be, by virtue of offering a service to the borrower, lender or investor on more favourable terms than it would otherwise offer, if the more favourable terms are offered on the condition that the borrower, lender or investor obtains another product or service from a particular person or entity, including the brokerage.     

Restriction re guarantees

      16.  A brokerage shall not, directly or indirectly, offer or make any guarantee to a lender in respect of a mortgage or to an investor in respect of an investment in a mortgage.     

Duty to return certain documents

      17.  (1)  A brokerage shall promptly return deeds, instruments or agreements signed by or on behalf of a borrower, lender or investor and any other documents given to the brokerage by the borrower, lender or investor when the brokerage no longer needs the documents in connection with a particular transaction.  

      (2)   A brokerage shall promptly, without charge, return the documents described in subsection (1) to a borrower, lender or investor upon a request made in writing.   

Information About the Brokerage

Disclosure re role of brokerage

      18.  A brokerage shall disclose in writing to a prospective borrower or lender information about the nature of its relationship with borrowers and lenders:

  1. Information about whether, and when, the brokerage is acting as a representative of the lender but not the borrower.
  2. Information about whether, and when, the brokerage is acting as a representative of the borrower but not the lender.
Disclosure re lender as major customer

      19.  (1)  Upon request, a brokerage shall disclose in writing to a prospective borrower the name of the lender, if any, who was a major customer of the brokerage during the previous fiscal year.

      (2)  For the purposes of subsection (1), a lender is a major customer of a brokerage during a fiscal year if the brokerage arranges mortgages for the lender and those mortgages constitute  more than 50 per cent of the total number of mortgages and mortgage renewals completed by the brokerage during that fiscal year.

      (3)  If the brokerage itself is the mortgage lender for  more than 50 per cent of the total number of mortgages and mortgage renewals completed by the brokerage during a fiscal year, the brokerage itself is deemed to have been a major customer of the brokerage during that fiscal year for the purposes of subsection (1).

Disclosure re business relationship with lenders

      20.  (1)  A brokerage shall disclose in writing to a prospective borrower  the number of lenders on whose behalf the brokerage acted as a representative during the previous fiscal year.

      (2)  When there are two or more lenders under one mortgage,  they are deemed to be one lender for the purposes of subsection (1).

Information about Fees and Other Payments

Representations re status of payments

      21.  (1)  A brokerage shall not, directly or indirectly, represent to any person or entity that any amounts payable to the brokerage in connection with carrying on the business of dealing or trading in mortgages or carrying on business as a mortgage lender are set or approved by any government authority.

      (2)  Subsection (1) does not apply with respect to disbursements that may be made by a brokerage for fees payable to register or deposit instruments under the Land Titles Act or the Registry Act.

Fees, etc., payable by the customer

      22.  (1)  A brokerage shall disclose in writing to a borrower, lender or investor, as the case may be, any amounts that will be payable by the borrower, lender or investor to the brokerage for its services or expenses, or the manner in which such amounts will be determined, the manner and time of payment of such amounts and the terms, if any, on which the payments are refundable.

      (2)  The disclosure must be made at the earliest opportunity and, in any event, before the brokerage provides any services to the borrower, lender or investor or incurs any expenses on behalf of the borrower, lender or investor for which the brokerage will seek payment from him, her or it.  

(3)  This section does not apply with respect to a lender or investor, as the case may be, that is another brokerage or a financial institution.

Fees, etc., payable by others

      23.  (1)  A brokerage shall give the following information, in writing, to a borrower in connection with a mortgage or renewal:  

  1. Whether the brokerage has received, may receive or will receive a fee or other remuneration, directly or indirectly, from another person or entity in connection with the negotiation or arrangement of the mortgage or renewal.
  2. If a fee or other remuneration or is or may be payable, the identity of the other person or entity, the method of calculating the amount of the fee or other remuneration and, in case of a benefit other than money, the nature of the benefit.

      (2)  The brokerage shall obtain the borrower’s written acknowledgement that the brokerage made the disclosure required by this section.

Fees, etc., payable by the brokerage to others

      24.  (1)  A brokerage shall give the following information, in writing, to a borrower in connection with a mortgage or renewal:  

  1. Whether the brokerage has paid, may pay or will pay a fee or other remuneration, directly or indirectly, to another person or entity in connection with the negotiation or arrangement of the mortgage or renewal.
  2. If a fee or other remuneration or is or may be payable, the identity of the other person or entity, the method of calculating the amount of the fee or other remuneration and, in case of a benefit other than money, the nature of the benefit.

(2)  The brokerage shall obtain the borrower’s written acknowledgement that the brokerage made the disclosure required by this section.

Fees, etc., for referral by brokerage

      25.  If a brokerage refers a borrower, lender or investor or a prospective borrower, lender or investor to another person or entity for a fee or other remuneration, the brokerage shall give the following information to the borrower, lender or investor or prospective borrower, lender or investor either before or when making the referral:

  1. A description of the nature of the relationship between the brokerage and the other person or entity.
  2. A statement concerning whether the brokerage has received, may receive or will receive a fee or other remuneration, directly or indirectly, for making the referral.

Duties in Particular Transactions

Duty re suitability of mortgage for customer

      26.  (1)  A brokerage shall take reasonable steps to ensure that any mortgage or investment in a mortgage that it recommends to a borrower, lender or investor, as the case may be, is suitable for the borrower, lender or investor having regard to the needs and circumstances of the borrower, lender or investor.  

      (2)  Subsection (1) does not apply if the borrower, lender or investor, as the case may be, is another brokerage or a financial institution.  

Disclosure of risks

      27.  (1)  A brokerage shall disclose in writing to a borrower, lender or investor, as the case may be, the risks of each mortgage or investment in a mortgage that the brokerage recommends to the borrower, lender or investor.  

      (2)  Subsection (1) does not apply if the borrower, lender or investor, as the case may be, is a specified person or entity or, in the case of an investment, if the brokerage is not acting as a representative of the investor.

      (3)  The brokerage shall obtain the written acknowledgement of the borrower, lender or investor, as the case may be, that the brokerage made the disclosure required by this section.

Disclosure of brokerage’s relationships

      28.  (1)  A brokerage shall disclose in writing to a borrower the nature of the relationship between the brokerage and each lender under a mortgage.  

      (2)  A brokerage shall disclose in writing to each lender the nature of the relationship between the brokerage and each borrower under a mortgage.

      (3)  A brokerage shall disclose in writing to each investor the nature of the relationship between the brokerage and each party to the trade in a mortgage.

      (4)  Subsections (2) and (3) do not apply with respect to an investor if another brokerage is acting as a representative of the investor in a trade.  

(5)  The brokerage shall obtain the written acknowledgement of the borrower, lender or investor, as the case may be, that the brokerage made the disclosure required by this section.

Disclosure of potential conflicts of interest

      29.  (1)  A brokerage shall disclose in writing to a borrower, lender or investor, as the case may be, any conflict of interest that the brokerage or any broker or agent authorized to deal or trade in mortgages on its behalf may have in connection with a mortgage or in connection with a trade in a mortgage.  

      (2)  The brokerage shall obtain the written acknowledgement of the borrower, lender or investor, as the case may be, that the brokerage made the disclosure required by this section.
 
      (3)  This section does not apply with respect to a lender if the lender is another brokerage or a financial institution.

(4)  This section does not apply with respect to an investor if the investor is another brokerage or a financial institution or if another brokerage is acting as a representative of the investor.

Duty re mortgage previously in default

      30.  (1)  A brokerage shall not sell or attempt to sell or arrange or attempt to arrange the sale of a mortgage that has been in default at any time in the preceding 12 months unless the brokerage informs the investor of the amount and duration of the default.  

(2)  A brokerage shall obtain the investor’s written acknowledgement that the brokerage has made the disclosure required by this section.  

Duties re reverse mortgages

      31.  (1) A brokerage shall not arrange or enter into a reverse mortgage with a borrower unless the brokerage receives from the borrower a written statement signed by a lawyer stating that the lawyer has given the borrower independent legal advice about the proposed reverse mortgage.

      (2)  For the purposes of this section, a mortgage is a reverse mortgage if both of the following conditions are satisfied:  

  1. The money that is advanced under the mortgage does not have to be repaid until the occurrence of one or more of the following events:
    1. The borrower’s death or, if there is more than one borrower, the death of the last surviving borrower.
    2. The acquisition by the borrower or the last surviving borrower, as the case may be, of another dwelling to use as his or her principal residence.
    3. The sale of the mortgaged property.
    4. The borrower’s or last surviving borrower’s vacating the mortgaged property to live elsewhere with no reasonable prospect of returning.
    5. An event of default under the conditions of the mortgage.
  2. One or more of the following conditions applies while the borrower or last surviving borrower, as the case may be, continues to occupy the mortgaged property as his or her principal residence and otherwise complies with the terms of the mortgage:
    1. No instalment repayments of the principal and no payment of interest on the principal are due or capable of becoming due.
    2. Although interest payments may become due, no repayment of all or part of the principal is due or capable of becoming due.
    3. Although interest payments and repayment of part of the principal may become due, repayment of all of the principal is not due or capable of becoming due.
Disclosure form, etc., re mortgages

      32.  (1)  A brokerage shall give each lender or investor the following information and documents with respect to a mortgage or a trade in a mortgage:

  1. A completed disclosure form, in a form approved by the Superintendent, signed by a broker.
  2. If the investment is in an existing mortgage, a copy of the mortgage instrument.
  3. If an appraisal of the applicable property has been done in the preceding 12 months and is available to the brokerage, a copy of the appraisal.
  4. If an appraisal of the applicable property is not available as described in paragraph 3, documentary evidence of the value of the property, other than an agreement of purchase and sale.
  5. If an agreement of purchase and sale in respect of the property has been entered into in the preceding 12 months and is available to the brokerage, a copy of the agreement of purchase and sale.
  6. Documentary evidence of the borrower’s ability to meet the mortgage payments.
  7. A copy of the application for the mortgage and of any document submitted in support of the application.
  8. If the mortgage is a new mortgage, documentary evidence of any down payment made by the borrower for the purchase of the property.
  9. A copy of any agreement that the investor may be asked to enter into with the brokerage.
  10. All other information, in writing, that a lender or investor of ordinary prudence would consider to be material to a decision about whether to lend money on the security of the property or to invest in the mortgage.

      (2)  Subsection (1) does not apply if the lender or investor is a member of a designated class of lenders and investors or if another brokerage is acting as a representative of the investor.  

(3)  A brokerage shall obtain the lender’s or investor’s written acknowledgement that the brokerage has disclosed the information and documents required by this section.

Disclosure form, etc., re mortgage renewals

      33.  (1)  A brokerage shall give each lender the following information and documents with respect to a renewal of a mortgage:

  1. A completed renewal disclosure form, in a form approved by the Superintendent, signed by a broker.
  2. If an appraisal of the property has been done in the preceding 12 months and is available to the brokerage, a copy of the appraisal.
  3. If an agreement of purchase and sale in respect of the property has been entered into in the preceding 12 months and is available to the brokerage, a copy of the agreement of purchase and sale.
  4. All other information, in writing, that a lender of ordinary prudence would consider to be material to a decision about whether to renew the mortgage.

      (2)  Subsection (1) does not apply if the lender is a member of a designated class of lenders and investors.

      (3)  A brokerage shall obtain the lender’s written acknowledgement that the brokerage has disclosed the information and documents required by this section.   

General Requirements for Disclosures

Clarity of disclosure, etc.

            34.  A written disclosure, consent or acknowledgement required by this Regulation must be expressed in plain language that is clear and concise and it must be presented in a manner that is logical and is likely to bring to the attention of the borrower, lender or investor, as the case may be, the information that is required to be conveyed.  

Disclosure based on estimate, etc.

      35.  (1)  The information to be disclosed under this Regulation to a borrower, lender or investor may be an estimate or may be based upon an assumption if, when the disclosure is made, the brokerage cannot know the actual information to be disclosed and if the estimate or assumption is reasonable.  

      (2)  If the information disclosed under this Regulation to a borrower, lender or investor is an estimate or is based upon an assumption, the brokerage shall so notify the borrower, lender or investor, as the case may be, in writing.

Deadline for disclosures to borrowers

      36.  (1)  Unless the context requires otherwise, every disclosure of information to a borrower that is required by this Regulation must be made at the earliest opportunity and, in any case, no later than two business days before the borrower enters into a mortgage agreement or signs a mortgage instrument, whichever is the earlier.

      (2)  If the borrower consents in writing to receiving the disclosure after the deadline described in subsection (1), the disclosure may instead be made at any time before the borrower signs a mortgage instrument.   

Deadline for disclosures to investors

      37.  (1)  Unless the context requires otherwise, every disclosure of information to a lender or investor that is required by this Regulation must be made at the earliest opportunity and, in any case, no later than two business days before the earliest of the following events:  

  1. The brokerage receives money from the lender or investor.
  2. The brokerage enters into an agreement to receive money from the lender or investor.
  3. The lender enters into an agreement to enter into a mortgage or the investor enters into an agreement to purchase, exchange or sell a mortgage.
  4. The money is advanced to the borrower under the mortgage.
  5. The trade completion date.

      (2)  If the lender or investor consents in writing to receiving the disclosure after the deadline described in subsection (1), the disclosure may instead be made no later than one business day before the earliest of the events described in that subsection.

     (3)  The brokerage shall obtain the lender’s or investor’s written acknowledgement that the brokerage made the disclosure required by this section.

Payments by Borrowers, Lenders, Investors

Payment by borrower

      38.  (1)  A brokerage shall not require, or accept, payment or security for payment, directly or indirectly, from or on behalf of a borrower for services provided or expenses incurred by the brokerage or by another person or entity until the borrower signs a mortgage instrument or, in the case of a mortgage renewal, until the borrower enters into a mortgage renewal agreement.  

      (2)  Subsection (1) does not apply with respect to a mortgage the principal amount of which is greater than $300,000.

Payment, etc., by lender or investor

      39.  (1)  A brokerage shall not receive money from a lender or enter into an agreement to receive money from a lender unless an application has been made for a mortgage on a specific property.  

      (2)  A brokerage shall not receive money from an investor or enter into an agreement to receive money from an investor unless an existing mortgage is available on a specific property.  

Receipt for deemed trust funds

      40.  Upon receiving from a person or entity money that constitutes deemed trust funds, the brokerage shall give the person or entity a written statement setting out the following information:  

  1. The amount of the money received by the brokerage.
  2. The date on which the brokerage received the money.
  3. The name of the person or entity from whom the money was received and, if the money was received on behalf of another person or entity, the name of that person or entity.
  4. The purpose for which the money was received, including particulars of the mortgage, if any, to which the money relates.
  5. The terms on which the brokerage holds the money.
  6. The name of the broker or agent who received the money on behalf of the brokerage.

Managing the Brokerage

Duty to establish policies and procedures

      41.  (1)  A brokerage shall establish and implement policies and procedures that are reasonably designed to ensure that the brokerage and every broker and agent who is authorized to deal or trade in mortgages on its behalf complies with the requirements established under the Act.

      (2)  A brokerage shall establish and implement policies and procedures providing for the adequate supervision of every broker and agent who is authorized to deal or trade in mortgages on its behalf.

Duty to establish complaints process

      42.  (1)  A brokerage shall establish a process for resolving complaints from the public about the mortgage business activities of the brokerage or of any broker or agent authorized to deal or trade in mortgages on its behalf.  

      (2)  The brokerage shall designate one or more individuals to receive and attempt to resolve complaints from the public, and each designated individual must be an employee of the brokerage or someone who is otherwise authorized to act on its behalf.  

(3)  The brokerage shall keep a record of all written complaints received from the public by the brokerage and all written responses by the brokerage.   

Duty to have insurance

      43.  (1)  A brokerage shall maintain errors and omissions insurance in a form approved by the Superintendent with extended coverage for loss resulting from fraudulent acts or shall have some other form of assurance in a form approved by the Superintendent.  

(2)  The insurance or other assurance must be sufficient to pay a minimum of $500,000 in respect of any one occurrence involving the brokerage or any broker or agent authorized to deal or trade in mortgages on its behalf and $1 million in respect of all occurrences during a 365-day period involving the brokerage or any such broker or agent.  

Duty re authorization of brokers, agents

      44.  (1)  A brokerage shall not authorize an individual to deal or trade in mortgages on its behalf unless the brokerage takes reasonable steps to satisfy itself that the individual is eligible to be licensed as a broker or agent.

      (2)  A brokerage shall not authorize an individual to deal or trade in mortgages on its behalf if the brokerage knows, or reasonably ought to know, that the individual is a broker or agent who is authorized to deal or trade in mortgages on behalf of another brokerage.

      (3)  A brokerage shall immediately notify the Superintendent if the brokerage believes that there may be reasonable grounds upon which the Superintendent could determine that a broker or agent is not suitable to be licensed under the Act.

Restrictions on payments by brokerage

      45.  (1)  A brokerage shall not pay a fee or other remuneration for dealing or trading in mortgages on its behalf to another person or entity that carries on the business of dealing or trading in mortgages unless the other person or entity either has a brokerage licence or is exempted from the requirement to have such a licence.

      (2)  A brokerage shall not pay a fee or other remuneration to an individual for dealing or trading in mortgages on its behalf if the brokerage knows, or reasonably ought to know, that the individual is a broker or agent who is authorized to deal or trade in mortgages on behalf of another brokerage.  

Required records

      46.  (1)  A brokerage shall maintain the following records:

  1. Complete and accurate financial records of its licensed activities in Ontario.
  2. Complete and accurate records of every mortgage application, mortgage instrument and mortgage renewal agreement received or arranged by the brokerage.
  3. Complete and accurate records of every other agreement entered into by the brokerage in the course of dealing or trading in mortgages or in the course of mortgage lending.
  4. Complete and accurate records of all documents or written information given to or obtained from a borrower or prospective borrower, a lender or prospective lender, an investor or prospective investor or any other person or entity pursuant to a requirement established under the Act.

(2)  The financial records maintained by a brokerage must distinguish between the deemed trust funds held by the brokerage and any other assets pertaining to other activities. 

Security of records

             47.  A brokerage shall take adequate precautions, appropriate to the form of its records, to guard against the falsification of the records.

Records retention

      48.  (1)  A brokerage shall retain all records that relate to a mortgage or mortgage renewal agreement, as the case may be, for at least six years after the date of maturity of the mortgage or renewal or other expiry of the mortgage transaction.

      (2)  A brokerage shall retain for at least six years all other records that it is required to create pursuant to a requirement established under the Act.

      (3)  A brokerage shall retain the records described in subsections (1) and (2) at its principal place of business in Ontario or at another place approved in writing by the Superintendent and, if the records originate at another place of business, the brokerage shall forward them to its principal place of business or the other approved place at the earliest opportunity.

      (4)  Despite subsection (3), records in electronic form need not be retained at the location specified in that subsection if those records can be retrieved from that location in an understandable electronic and paper form promptly upon request.    

      (5)  A brokerage shall ensure that it maintains the capacity to retrieve its electronic records throughout the period during which this section requires the records to be retained.

Managing Deemed Trust Funds

Deemed trust funds

      49.  (1)  Subject to subsection (2), money received by a brokerage directly or indirectly from a borrower, lender or investor in connection with carrying on the business of dealing or trading in mortgages is deemed, for the purposes of this Regulation, to be held in trust by the brokerage.   

      (2)  Money received by a brokerage for any of the following purposes is not deemed to be held in trust by the brokerage:   

  1. Money earned by the brokerage for its services.
  2. Money received to reimburse the brokerage for its expenses.
  3. Money payable to the brokerage as a mortgage lender.
Authorized trust account

      50.  (1)  A brokerage that receives deemed trust funds shall maintain a trust account designated as its mortgage brokerage trust account at one of the following types of financial institutions in Ontario:

  1. A bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada).
  2. A credit union or caisse populaire to which the Credit Unions and Caisses Populaires Act, 1994 applies.
  3. A corporation registered under the Loan and Trust Corporations Act.
  4. A retail association as defined under the Cooperative Credit Associations Act (Canada).

      (2)  A brokerage shall not establish or maintain more than one mortgage brokerage trust account unless it has the prior written consent of the Superintendent to do so.

Administration of trust account

      51.  (1)  A brokerage shall deposit deemed trust funds that it receives into its authorized trust account within two business days after receiving the funds.   

      (2)  A brokerage shall keep deemed trust funds separate from money that does not constitute deemed trust funds.  

      (3)  Unless otherwise agreed to in writing by the beneficial owner of deemed trust funds, any interest earned on the deemed trust funds shall be paid to the beneficial owner.

      (4)  A brokerage shall not disburse any deemed trust funds except in accordance with the terms upon which the funds were received by the brokerage.  

Record of trust account transactions

      52.  A brokerage shall make a written record of all deemed trust funds that it receives and all transactions relating to the funds, and the record must include the following information:

  1. The contents of the written statement required by section 38 that is given to the person or entity from whom money is received.
  2. With respect to every deposit made to the authorized trust account, the amount of the deposit, the date on which it was made, the name of the person or entity from whom the deposited money was received and the purpose for the deposit, including particulars of the mortgage, if any, to which the deposit relates.
  3. With respect to every disbursement made from the authorized trust account, the amount of the disbursement, the date on which it was made, the name of the person or entity to whom the money was disbursed and the purpose for the disbursement, including particulars of the mortgage, if any, to which the disbursement relates.
  4. With respect to every payment of interest on money in the authorized trust account, a way of identifying the deposit of deemed trust funds to which the interest relates, the amount of the interest associated with the deposit and the date, if any, on which the interest was paid to the person or entity from whom the deposit was received.
Monthly reconciliation statement for trust account

      53.  (1)  Every month, a brokerage shall prepare a reconciliation statement for the authorized trust account and the principal broker shall review the statement and sign and date it to indicate that he or she certifies that it is accurate.  

      (2)  The reconciliation statement for a month must be prepared, reviewed and signed by the following deadline:

  1. If the brokerage receives a monthly account statement from the financial institution where the account is maintained, 30 days after the brokerage receives the monthly account statement.
  2. In any other case, 30 days after the end of the month.

      (3)  The reconciliation statement for a month must set out the following information:   

  1. The differences, if any, between the records of the brokerage and the records of the applicable financial institution as of the following date:
    1. if the brokerage receives a monthly account statement from the financial institution, the date of the monthly account statement, and
    2. in any other case, the last day of the month.
  2. The balance in the account that is owing to each person or entity as of the applicable date described in subparagraph 1 i or ii.
Duty to report shortfall in trust account

      54.  If a brokerage determines that there is a shortfall in the authorized trust account, the brokerage shall immediately notify the Superintendent.

Annual reconciliation statement for trust account

      55.  (1)  If, for any month during its fiscal year, a brokerage is required to prepare a reconciliation statement for the authorized trust account, the brokerage shall prepare an annual reconciliation statement for the account for the fiscal year within 90 days after the end of the year.

      (2)  The annual reconciliation statement must summarize the contents of each of the required monthly reconciliation statements for the account for the fiscal year.

Other Matters

Duty re concurrent businesses

      56.  A brokerage that engages in another business concurrently with carrying on the business of dealing or trading in mortgages or carrying on business as a mortgage lender shall not allow the other business to jeopardize its integrity, independence or competence when carrying on the business of dealing or trading in mortgages or carrying on business as a mortgage lender.  

Use of certain information

      57.  A brokerage shall not use information obtained in the course of carrying on business for any purpose other than that for which the information was obtained unless the brokerage has the written consent of the person or entity who is the subject of the information.  

Designation when dwelling is place of business

      58.  If a brokerage’s principal place of business in Ontario is a place that is used as a dwelling, the brokerage shall designate a room or area of the dwelling as the principal place of business and shall inform the Superintendent of the room or area so designated.    

Required addresses

      59.  (1)  A brokerage shall maintain a mailing address in Ontario that is suitable to permit service by registered mail.

      (2)  A brokerage shall maintain an e-mail address.  

Use of forms

      60.  If a form is approved by the Superintendent for a purpose under the Act, a brokerage shall ensure that the brokerage and its brokers and agents use the current approved version of the form.  

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