Mortgage Brokerages, Lenders and Administrators Act, 2006: A Consultation Draft of Regulations Proposed under Bill 65 - Explanatory notes

Mortgage Brokerages,
Lenders and
Administrators Act,
2006

A Consultation Draft of
Regulations Proposed under Bill 65

Proposed by the
Ministry of Finance

This Consultation Draft is intended to
facilitate constructive dialogue concerning its contents.

Note that the regulations will only become law if the Legislative Assembly passes the associated legislation and if the Lieutenant Governor in Council promulgates the regulations.

NOVEMBER, 2006

Dear Stakeholder:

I am pleased to enclose for your review and comment a copy of A Consultation Draft of Regulations Proposed under Bill 65, the Mortgage Brokerages, Lenders and Administrators Act, 2006 which proposes new regulations regarding regulated activities, exemptions, licensing, the powers and duties of principal brokers and the standards of practice for brokerages.

This draft is the result of on-going public consultations and comments that have been received on ways to improve consumer protection and streamline regulatory approaches. This draft follows previous consultation on licensing regulations released in March 2005.  Additional regulations not included in this consultation document are being developed concerning topics such as standards of practice for brokers, agents, and mortgage administrators.
 
Your views are important and will assist the government in finalizing the regulatory proposals in this area. The ministry welcomes suggestions from consumers, businesses, and professionals to help us meet the objective of providing better consumer protection in a way that is fair and practical for individuals and businesses.

The enclosure contains information on how you can comment on these proposals.

Thank you for taking the time to read this consultation draft. Your input is appreciated and will be taken into consideration.

 

Sincerely,

 

Wayne Arthurs
Parliamentary Assistant to the
Minister of Finance

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Table of Contents

I. Invitation for Comments
II. Summary of Proposals
1. General
2. Additional Regulated Activities
3. Exemptions from the Requirements to be Licensed
4. Mortgage Brokerages - Licensing
5. Mortgage Brokers and Agents - Licensing
6. Mortgage Administrators - Licensing
7. Principal Brokers
8. Standards of Practice - Mortgage Brokerages
III. Consultation Draft of Regulations
Additional Regulated Activities
Exemptions from the Requirements to be Licensed
Mortgage Brokerages - Licensing
Mortgage Brokers and Agents - Licensing
Mortgage Administrators - Licensing
Principal Brokers
Standards of Practice - Mortgage Brokerages
IV.  Investor  / Lender Disclosure Forms

I. Invitation for Comments

The Ministry of Finance is seeking your views on A Consultation Draft of Regulations Proposed under Bill 65, the Mortgage Brokerages, Lenders and Administrators Act, 2006.

The accompanying consultation draft contains detailed wording of the proposed regulations regarding regulated activities, exemptions, licensing, powers and duties of principal brokers and the standards of practice for brokerages. These proposals are intended solely for discussion purposes and would only become law if Bill 65 is passed by the Legislature and if the regulations are promulgated by the Lieutenant Governor in Council.
Your views are important and will assist the ministry in finalizing these regulatory proposals. The Ministry of Finance invites your comments on the issues outlined in this consultation draft. Interested parties are invited to make written submissions by January 19th, 2007.
You may send comments by mail, fax or e-mail to:

Draft regulations proposed under Bill 65

Luba Mycak
Senior Manager
Industrial & Financial Policy Branch
Ministry of Finance
777 Bay Street, 10th Floor
Toronto, ON M5G 2C8

Tel: (416) 326-9227
Fax: (416) 327-0941

E-Mail: mbconsultations@ontario.ca

This consultation paper can be reviewed online at http://www.fin.gov.on.ca

A copy of Bill 65, the Mortgage Brokerages, Lenders and Administrators Act, 2006 can be obtained online at http://www.ontla.on.ca/
Please note that this is a public consultation. All comments received will be considered public and may be used by the ministry to help evaluate and revise the proposed draft regulations. This may involve disclosing some or all comments or materials, or summaries of them, to other interested parties during and after the consultation.

Any personal information in submissions, such as names and contact details (i.e. home addresses and phone numbers, personal email addresses, etc.) – in addition to any other information that could be used to identify an individual – will not be disclosed without prior consent. However, records created by individuals acting in a professional capacity (i.e. on behalf of a group, association, business, commercial enterprise, etc.) may be disclosed, unless your covering letter states that such disclosure would be harmful and/or prejudicial.

If for any reason you feel your comments should not be shared with other parties, please indicate this in your covering letter.
If you have any questions about this consultation or how any element of your submission may be used or disclosed, please contact:

Luba Mycak
Senior Manager
Industrial & Financial Policy Branch
Ministry of Finance
777 Bay Street, 10th Floor
Toronto, ON M5G 2C8

Tel: (416) 326-9227
Fax: (416) 327-0941

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II. Summary of Proposals

1. General

The Ministry of Finance is conducting consultations with stakeholders and inviting input from the public on draft regulations under Bill 65, the Mortgage Brokerages, Lenders and Administrators Act, 2006.  While the proposed act sets out a new framework for regulating the mortgage brokerage industry, many of the detailed and specific rules are to be developed and set out in regulations.

As a result, the Ministry is releasing the following draft regulations for consultation:

  • Additional Regulated Activities
  • Exemptions from the Requirements to be Licensed
  • Mortgage Brokerages – Licensing
  • Mortgage Brokers and Agents – Licensing
  • Mortgage Administrators – Licensing
  • Principal Brokers
  • Standards of Practice – Mortgage Brokerages

In March 2005, the Ministry released and consulted on three regulations concerning the licensing requirements for mortgage brokerages, mortgage administrators, and mortgage brokers and agents. These regulations are being re-released for further consultation as they have taken into account the feedback that was received in the earlier consultation and now contain new proposals as well.

In July 2005, the Ministry consulted on a draft regulation dealing with the disclosure of the cost of borrowing under the existing Mortgage Brokers Act. That draft regulation proposed mandatory disclosure requirements for consumer loans and other disclosure requirements relating to statements and advertisements. It also described how the cost of borrowing under a loan is to be calculated.   It is proposed that the cost of borrowing disclosure regulation under Bill 65 adopt the requirements set out in the earlier consultation with necessary modifications. That regulation is not included in this consultation document.

Additional regulations not included in this document are also being developed. The topics that will be addressed include: standards of practice for brokers and agents, standards of practice for mortgage administrators, and details regarding administrative penalties.

The content, structure and form of the draft regulations are subject to change as a result of the consultation process and as a result of review by the government.  These proposals would only come into effect if Bill 65 is passed by the Legislative Assembly and the regulations are promulgated by the Lieutenant Governor.

The following gives readers a brief summary of the regulations in this consultation package.  Readers are encouraged to focus their attention on the actual wording of the consultation draft of the regulations and not rely only on this guide.

2. Additional Regulated Activities

This regulation prescribes an additional activity which constitutes administering mortgages.

3. Exemptions from the Requirements to be Licensed

Simple Referrals: Persons who refer borrowers to lenders, or lenders to borrowers would be exempt from the requirement to have a licence if written notice is provided in advance about fees and relationships with the lender, and only if limited information about the borrower such as name and address is exchanged.

Lawyers: Lawyers would be exempt from licensing requirements if they are acting in their professional capacity as a lawyer on behalf of a client. Lawyers would not be exempt if they hold themselves out as engaging in activities which require a brokerage, broker or agent licence.

Other Exemptions: Certain crown corporations, trustees in bankruptcy, administrators of mortgage-backed securities and others would be exempt from the requirement to be licensed under Bill 65. 

4. Mortgage Brokerages - Licensing

This draft regulation is based on the March 2005 consultation draft with the following modification:

  • A mortgage brokerage may be licensed in its legal name or trade name.  The Superintendent could refuse to issue a licence in a name that is misleading or confusing.

5. Mortgage Brokers and Agents - Licensing

This draft regulation is based on the March 2005 consultation draft.  Some of the modifications include the following:

  • Education and experience exemptions would be clearly set out for registrants and listed agents under the Mortgage Brokers Act, real estate brokers, and those whose education is in progress at the effective date of the proposed regulation.
  • The Superintendent would approve the required programs of education.
  • A simplified definition of finance company is proposed.

6. Mortgage Administrators - Licensing

This draft regulation is based on the March 2005 consultation draft with the following modification:

  • A mortgage administrator may be licensed in its legal name or trade name.  The Superintendent could refuse to issue a licence in a name that is misleading or confusing.

7. Principal Brokers

It is proposed that a principal broker have a duty to ensure that the brokerage and each broker and agent comply with every requirement under the Act and that brokerages take reasonable steps to deal with any contraventions of the Act.  A principal broker would also be required to review the compliance policies and procedures of the brokerage.  A brokerage's trust account reconciliation statements would need to be reviewed and certified by the principal broker.

8. Standards of Practice - Mortgage Brokerages

This proposed regulation sets out rules and requirements that must be complied with by all mortgage brokerages.  The objectives for these regulations are based on the following principles:

  • Borrowers, lenders and investors need to be assured that they are treated fairly by brokerages and that they have all necessary information to enable them to make an informed decision
  • Brokerages need to demonstrate accountability for their representations to the public, sound internal governance, and financial accountability.

Non-compliance with the standards of practice may give rise to various regulatory remedies and would constitute an offence under Bill 65.

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Representations to the Public

A brokerage would not be able to carry on business in a name other than a name in which it is licensed. Advertisements and similar materials would need to clearly disclose the name and licence number of the brokerage and if a broker or agent is identified, then the broker or agent's name and licence number.  In all cases appropriate titles such as “brokerage”, “broker”, or “agent” would be required to be used.

False, misleading or deceptive representations would be prohibited. No representation could be made to indicate that fees are set or approved by the government.

A brokerage would be required to maintain errors and omissions insurance with extended coverage for fraud sufficient to pay a minimum of $500,000 in respect of any occurrence or $1,000,000 in respect of all occurrences in a year.

Internal Governance

In order to qualify as a principal broker of a brokerage, an individual would be required to be a licensed mortgage broker and either an officer, director, partner or sole proprietor of the brokerage.  A brokerage could only have one principal broker at any time.

Brokerages would be required to designate an employee as a complaints officer.  A record of all complaints received by the brokerage would be required to be maintained. The brokerage would be required to provide written responses to all written complaints received. Complainants would be informed that they can contact the Superintendent if they are not satisfied by the brokerage's proposed resolution of a complaint.

General Standards of Practice

Brokerages would be prohibited from acting for a borrower, lender or investor if there were reasonable grounds to believe the mortgage or investment was unlawful.

Brokerages could only receive money from a lender or investor if there is a specific mortgage or property to be mortgaged.

Brokerages would be required to take reasonable steps to ensure the suitability of a mortgage for a borrower, lender, or investor as the case may be.

Guarantees by a brokerage in respect of a mortgage or an investment in a mortgage would be prohibited.

No advance payments by a borrower to a brokerage would be permitted on mortgages less than $300,000.

A brokerage would be prohibited from paying fees or remuneration in respect of dealing or trading in mortgages to an unlicensed person unless the person was exempt from the requirement to be licensed and would be prohibited from paying brokers and agents working for another brokerage.

Coercive tied selling would be prohibited.

The brokerage would be required to return documents to the owner of the documents upon request.

The brokerage would be responsible for ensuring the brokerage and its brokers and agents use approved forms.

Obtaining and Disclosing Information

Brokerages would be required to verify the identity of borrowers, lenders and investors in the circumstances indicated and disclose doubts, if any, about the accuracy of information in a mortgage application or a borrower's legal authority to mortgage a property.

Before arranging or entering into a reverse mortgage with a borrower, the brokerage would be required to receive confirmation that the borrower had obtained independent legal advice.

Brokerages would also be required to disclose to borrowers, lenders and investors information regarding fees, risks and benefits of proposed mortgages and conflicts of interest within specified time periods.

The documents and information which would be required to be provided by the brokerage to a lender or investor, or to a lender upon the renewal of a mortgage, are listed in the proposed regulation.

  • A disclosure form, in a form approved by the Superintendent, signed by the broker, is among the listed documents.  A draft copy of the form, as well as a draft copy of the disclosure form for renewal of a mortgage, is included in Section IV for consultation purposes.

A specified person or entity, as defined in the regulation to include high income or net worth persons and financial institutions, would be exempt from receiving these documents or information.
 
Brokerages would be prohibited from selling or attempting to sell a mortgage that has been in default in the previous 12 months unless written disclosure is provided to the investor about the amount and length of default.

Trust Funds

Brokerages would be required to maintain a trust account, keep records of trust money transactions and prepare monthly trust reconciliation statements.  Shortfalls in the trust account would be required to be reported to the Superintendent.

Reports and Recordkeeping

Brokerages would be required to maintain an address for service in Ontario and an e-mail address. Certain changes would be required to be reported to the Superintendent including changes in places of business, changes in the brokerage's officers, directors or partners, and changes in significant ownership interest.

Each brokerage would be required to submit an annual information return by March 31 of each year in a form approved by the Superintendent.

Audited annual financial statements, prepared in accordance with generally accepted accounting principles would need to be filed with the Superintendent unless the brokerage did not hold any money in trust during the fiscal year. 

Recordkeeping requirements are also proposed.

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III. Consultation Draft of Regulations

Additional Regulated Activities

Exemptions from the Requirements to be Licensed

Mortgage Brokerages - Licensing

Mortgage Brokers and Agents - Licensing

Mortgage Administrators - Licensing

Principal Brokers

Standards of Practice - Mortgage Brokerages

IV.  Investor  / Lender Disclosure Forms

(PDF Version)

Investor/Lender Disclosure Form page 1 - Link to PDF version
Investor/Lender Disclosure Form page 2 - Link to PDF version
Investor/Lender Disclosure Form page 3 - Link to PDF version
Investor/Lender Disclosure Form page 4 - Link to PDF version
Investor/Lender Disclosure Form page 5 - Link to PDF version
Investor/Lender Disclosure Form page 6 - Link to PDF version
Lender Renewal Disclosure Form page 1 - Link to PDF version
Lender Renewal Disclosure Form page 2 - Link to PDF version
Lender Renewal Disclosure Form page 3 - Link to PDF version
Lender Renewal Disclosure Form page 4 - Link to PDF version
Lender Renewal Disclosure Form page 5 - Link to PDF version
Lender Renewal Disclosure Form page 6 - Link to PDF version

Note that these regulations will only become law if the
Legislative Assembly passes the associated legislation and
if the Lieutenant Governor in Council promulgates the
regulations.

© Queen's Printer for Ontario, 2006
ISBN 1-4249-2753-6 (print)
ISBN 1-4249-2754-4 (HTML)
ISBN 1-4249-2755-2 (PDF)

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