Draft regulation - Standards of practice - Mortgage Brokerages

DRAFT REGULATION

STANDARDS OF PRACTICE – MORTGAGE BROKERAGES

Note: This is a draft regulation for discussion purposes. Bill 65, the Mortgage Brokerages, Lenders and Administrators Act, 2006, is not yet enacted.

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CONTENTS


PART I
INTERPRETATION

1.

Definitions

PART II
REPRESENTATIONS TO THE PUBLIC

2.

Name

3.

Advertisements, etc.

4.

Disclosure of name and licence number on request

5.

Misrepresentation, etc.

6.

Representation re setting of fees

PART III
INTERNAL GOVERNANCE

7.

Determination of qualifications of brokers and agents

8.

Brokers, agents must be licensed

9.

Other brokerage's brokers, agents

10.

Reports to Superintendent re brokers, agents

11.

Qualifications of principal broker

12.

Report to Superintendent re principal broker designation

13.

Complaints process

14.

Compliance and supervision policies and procedures

15.

Insurance

PART IV
GENERAL STANDARDS OF PRACTICE

16.

Unlawful mortgage

17.

Specific property required

18.

Suitability of mortgage for borrower, lender, investor

19.

No guarantee of investment

20.

Timing of payment for services by borrower

21.

Fees payable only to licensed brokerages or exempt persons

22.

No fees to other brokerages' brokers, agents

23.

Brokerage's other businesses

24.

Coercive tied selling

25.

Documents returned to owner

26.

Use of forms

PART V
OBLIGATIONS TO OBTAIN AND DISCLOSE INFORMATION

Verification and Accuracy of Information

27.

Verification of identity

28.

Accuracy of information

Disclosure on Referrals

29.

Disclosure on referrals

Disclosure to Borrowers

30.

Disclosure to borrower re fees

31.

Disclosure to borrower re other payments

32.

Disclosure to borrower re risks, benefits

33.

Disclosure to borrower re conflict of interest

34.

Reverse mortgage, borrower's independent legal advice

Disclosure to Lenders

35.

Disclosure to lender re fees

36.

Disclosure to lender re risks, benefits

37.

Disclosure to lender re conflict of interest

Disclosure to Investors

38.

Disclosure to investor re fees

39.

Disclosure to investor re risks, benefits

40.

Disclosure to investor re conflict of interest

41.

Disclosure to investor re conflict of interest — brokerage acting as principal

Documents

42.

Documents to lender, investor

43.

Documents to lender on renewal of mortgage

Disclosure if Mortgage Previously in Default

44.

Disclosure if mortgage previously in default

Rules re Disclosures, Etc.

45.

Rules re disclosures, etc.

PART VI
TRUST FUNDS

46.

Trust funds

47.

Trust account

48.

Receipt of trust funds

49.

Records of trust money transactions

50.

Monthly reconciliation

51.

Shortfall

PART VII
REPORTS AND RECORDKEEPING

52.

Address for service

53.

E-mail address

54.

Places of business

55.

Change in directors, officers, partners

56.

Change in significant interest in corporation

57.

Annual information return

58.

Financial records

59.

Recordkeeping

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part I
Interpretation

Definitions

1. In this Regulation,

“borrower”, “lender” and “investor” include a prospective borrower, lender or investor where appropriate in the context;
“business day” means a day other than a Saturday or a holiday;
“commitment” means a document issued by or on behalf of a lender that states that the lender will enter into a mortgage and which, when agreed to by the borrower, forms a binding agreement;
“effective date” means the date on which subsections 2 (3) and 3 (3) of the Act come into force;
“investor” means a person or entity that makes an investment in a mortgage;
“requirement established under the Act” means a requirement imposed by the Act or by a regulation, a condition of a licence, a requirement imposed by order or an obligation assumed by way of an undertaking;“specified person or entity” means,
  1. a brokerage, when acting on its own behalf,
  2. a financial institution,
  3. the Crown in right of Ontario, Canada or any province of Canada,
  4. a corporation that is a subsidiary of a person or entity described in clause (a) , (b) or (c) ,
  5. a corporation that is an approved lender under the National Housing Act (Canada) ,
  6. a pension fund,
  7. a person or entity registered under the Securities Act as an advisor or dealer, other than a limited market dealer, where that person or entity acts 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 registered under securities legislation in another province or territory of Canada in a manner comparable to that described in clause (g) and acting in the capacity described in clause (g) ,
  9. an individual who provides confirmation to the brokerage, in a form approved by the Superintendent, that he or she, alone or together with a 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) having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1 million,
  10. an individual who provides confirmation to the brokerage, in a form approved by the Superintendent, that his or her net income before taxes exceeded $200,000 in each of the two most recent years or his or her net income before taxes combined with that of a spouse exceeded $300,000 in each of those two years and that the individual, in either case, has a reasonable expectation of exceeding the same net income in the current year,
  11. an individual who provides confirmation to the brokerage, in a form approved by the Superintendent, that he or she, alone or together with a spouse, has net assets of at least $5 million, or
  12. a person or entity, other than an individual, that provides confirmation to the brokerage, in a form approved by the Superintendent, that it has net assets of at least $5 million as reflected in its most recently prepared financial statement;
“spouse” means spouse as defined in section 29 of the Family Law Act;
“syndicated mortgage” means a mortgage involving two or more lenders;“trade completion date” means 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 a mortgage, or
  2. the date the trade in a mortgage is completed.
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part ii
Representations to the Public

Name

2. A brokerage shall not carry on business in a name other than a name in which it is licensed.

Advertisements, etc.

3. (1) A brokerage shall clearly and prominently disclose a name in which it is licensed and its licence number in all of its advertisements and in any materials that it uses in connection with its carrying on business.

(2) A brokerage that identifies a broker or agent by name in an advertisement or in any material that the brokerage uses in connection with its carrying on business shall identify the broker or agent by the name in which the broker or agent is licensed and shall disclose the broker's or agent's licence number.

(3) A brokerage shall not make a false, misleading or deceptive statement in an advertisement or in any material that it uses in connection with its carrying on business.

(4) A brokerage shall use the following titles when referring to a brokerage, broker or agent in any advertisement or in any material that it uses in connection with its carrying on business:

  1. In reference to itself or any other brokerage, “mortgage brokerage”, “brokerage”, “maison de courtage d'hypothèques” or “maison de courtage”, an abbreviation or an equivalent in another language.
  2. In reference to a broker, “mortgage broker”, “broker”, “courtier en hypothèques” or “courtier”, an abbreviation or an equivalent in another language.
  3. In reference to an agent, “mortgage agent”, “agent” or “agent en hypothèques”, an abbreviation or an equivalent in another language.

(5) The titles required by subsection (4) need not be used with every reference to a brokerage, broker or agent, but shall be used at least once in an advertisement or other material that refers to a brokerage, broker or agent.

(6) This section applies to advertisements and materials that are published, circulated or broadcast by any means.

Disclosure of name and licence number on request

4. A brokerage shall give any person or entity who makes a request,

  1. the brokerage's licence number;
  2. the name and licence number of any broker or agent authorized to deal or trade in mortgages on its behalf.

Misrepresentation, etc.

5. A brokerage shall not,

  1. make a false, misleading or deceptive representation to a borrower, lender or investor;
  2. conduct itself in a manner that misleads or deceives any person or entity, or is likely to mislead or deceive any person or entity;
  3. unduly pressure a borrower, lender or investor;
  4. use information obtained in the course of carrying on business for any purpose other than that for which it was obtained without the written consent of the person or entity who is the subject of the information; or
  5. participate in any unlawful activities, whether or not related to its business of dealing or trading in mortgages or to its business as a mortgage lender.

Representation re setting of fees

6. A brokerage shall not, directly or indirectly, represent to any person or entity that any amounts payable to the brokerage in connection with its carrying on business are set or approved by any government authority.

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part iii
Internal Governance

Determination of qualifications of brokers and agents

7. A brokerage shall not authorize an individual to deal or trade in mortgages on its behalf unless that individual satisfies the prescribed requirements to be licensed as a broker or agent.

Brokers, agents must be licensed

8. A brokerage shall not permit an employee or other individual who is authorized to act on its behalf to engage in any activity that requires a licence under the Act unless that employee or other individual is permitted to engage in that activity by the licence issued to him or her.

Other brokerage's brokers, agents

9. A brokerage shall not authorize a broker or agent to deal or trade in mortgages on its behalf if the brokerage knows or reasonably ought to know that the broker or agent is authorized to deal or trade in mortgages on behalf of another brokerage.

Reports to Superintendent re brokers, agents

10. (1) A brokerage shall report to the Superintendent if a broker or agent ceases to be authorized to deal or trade in mortgages on its behalf, and shall do so within five days after the broker or agent ceases to be so authorized.

(2) A brokerage shall promptly report to the Superintendent if the brokerage has reasonable grounds to believe that a broker or agent is no longer suitable to be licensed as a broker or agent.

Qualifications of principal broker

11. (1) A brokerage may designate an individual as its principal broker if the individual satisfies both of the following requirements:

  1. The individual is a mortgage broker authorized to deal or trade in mortgages on behalf of the brokerage.
  2. The individual is,
    1. if the brokerage is a corporation, a director or officer of the corporation,
    2. if the brokerage is a partnership, other than a limited liability partnership, a partner,
    3. if the brokerage is a limited liability partnership, a general partner,
    4. if the brokerage is a sole proprietorship, the sole proprietor.

(2) A brokerage shall have only one principal broker at any time.

Report to Superintendent re principal broker designation

12. A brokerage shall inform the Superintendent of the name of the individual designated to be the brokerage's principal broker,

  1. within 10 days after the later of the effective date and the day the brokerage is issued its brokerage licence; and
  2. within five days after the brokerage designates a new principal broker to replace a prior principal broker.

Complaints process

13. (1) A brokerage shall,

  1. designate an individual employed by or otherwise authorized to act on behalf of the brokerage to be the brokerage's complaints officer; and
  2. authorize the complaints officer to receive and attempt to resolve all complaints from any person or entity respecting the brokerage or any broker or agent authorized to deal or trade in mortgages on behalf of the brokerage.

(2) A brokerage shall,

  1. give each complainant who submits a written complaint to the brokerage a written response to the complaint, setting out the brokerage's proposed resolution of the complaint and advising that the complainant may refer the complaint to the Superintendent if the complainant is not satisfied by the brokerage's proposed resolution; and
  2. keep a record of all complaints received by the brokerage and all the responses given to complainants.

Compliance and supervision policies and procedures

14. A brokerage shall establish and implement policies and procedures reasonably designed to ensure,

  1. that the brokerage, and each broker and agent authorized to deal or trade in mortgages on its behalf, comply with every requirement established under the Act; and
  2. that each broker and agent authorized to deal or trade in mortgages on its behalf is adequately supervised.

Insurance

15. (1) A brokerage shall at all times maintain errors and omissions insurance with extended coverage for loss resulting from fraudulent acts or have some other form of assurance.

(2) The errors and omissions insurance or other assurance required by subsection (1) must be,

  1. in a form approved by the Superintendent; and
  2. sufficient to pay a minimum of $500,000 in respect of any one occurrence involving the brokerage or any mortgage broker or agent authorized to deal or trade in mortgages on behalf of the brokerage and $1 million in respect of all occurrences during a 365-day period involving the brokerage or any mortgage broker or agent authorized to deal or trade in mortgages on behalf of the brokerage.
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part iv
General Standards Of Practice

Unlawful mortgage

16. 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.

Specific property required

17. (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.

Suitability of mortgage for borrower, lender, investor

18. (1) A brokerage shall take reasonable steps to ensure that,

  1. any mortgage it recommends to a borrower is suitable for the borrower, having regard to the borrower's needs and circumstances;
  2. any mortgage it recommends to a lender is suitable for the lender, having regard to the lender's needs and circumstances; and
  3. any investment in a mortgage it recommends to an investor for whom the brokerage is acting is suitable for the investor, having regard to the investor's needs and circumstances.

(2) Clauses (1) (b) and (c) do not apply where the lender or investor is another brokerage or a financial institution.

No guarantee of investment

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

Timing of payment for services by borrower

20. (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 unless and until the earlier of,

  1. the borrower signing a commitment; and
  2. the borrower signing a mortgage instrument,

or, in the case of a renewal of a mortgage, unless and until the lender and borrower enter 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.

Fees payable only to licensed brokerages or exempt persons

21. A brokerage shall not pay a fee or other remuneration to any person or entity that carries on the business of dealing or trading in mortgages unless, at the time of the activity for which the fee or other remuneration is paid, the person or entity was licensed as a brokerage or was not required to be licensed.

No fees to other brokerages' brokers, agents

22. A brokerage shall not pay a fee or other remuneration for dealing or trading in mortgages to a broker or agent that the brokerage knows or reasonably ought to know is authorized to deal or trade in mortgages on behalf of another brokerage.

Brokerage's other businesses

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

Coercive tied selling

24. (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) A brokerage shall not be considered to be coercing a borrower, lender or investor under subsection (1) if the brokerage offers a service to a borrower, lender or investor on more favourable terms than the brokerage would otherwise offer, where the more favourable terms are offered on the condition that the borrower, lender or investor obtain another product or service from a particular person or entity, including the brokerage.

Documents returned to owner

25. (1) A brokerage shall not unreasonably withhold any document from its owner.

(2) A brokerage shall promptly return a document to its owner, without charge, when requested in writing to do so by the owner, the owner's agent or the Superintendent.

Use of forms

26. Where a form is approved by the Superintendent for a purpose under the Act, a brokerage shall ensure that the forms used by the brokerage and by its brokers and agents are the current approved versions of them.

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part v
Obligations to Obtain and Disclose Information

Verification and Accuracy of Information

Verification of identity

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

(2) A brokerage shall take reasonable steps to verify the identity of the lender or, in the case of a syndicated mortgage, each lender, before the borrower signs a commitment, a mortgage instrument or a mortgage renewal agreement, and shall advise the borrower if it is unable to do so.

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

(4) A brokerage shall take reasonable steps to verify the identity of each investor in a trade in mortgages, other than an investor for whom another brokerage is acting, before the trade completion date.

(5) Subsection (2) does not apply where the lender is required by law to verify the identity of the borrower.

Accuracy of information

28. (1) If a brokerage has reason to doubt the accuracy of information contained in a borrower's mortgage application or a document submitted in support of an application, the brokerage shall so advise the lender or, in the case of a syndicated mortgage, each lender, at the earliest opportunity.

(2) If a brokerage has reason to doubt a borrower's legal authority to mortgage a property, the brokerage shall so advise the lender, or, in the case of a syndicated mortgage, each lender, at the earliest opportunity.

Disclosure on Referrals

Disclosure on referrals

29. A brokerage that refers a person or entity to another person or entity for a fee or other remuneration shall, before or at the time of making the referral, advise the person or entity being referred,

  1. that the brokerage has received or will or may receive a fee or other remuneration, whether directly or indirectly, for making the referral; and
  2. of the nature of the relationship between the brokerage and the person or entity to whom the referral is being made.

Disclosure to Borrowers

Disclosure to borrower re fees

30. (1) A brokerage shall disclose in writing to a borrower any amounts that will be payable by the borrower 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 required by subsection (1) shall be made at the earliest opportunity and no later than before the brokerage provides any services to the borrower or incurs any expenses on behalf of the borrower for which the brokerage will seek payment from the borrower.

Disclosure to borrower re other payments

31. (1) A brokerage shall disclose in writing to the borrower,

  1. whether it has received or will or may receive a fee or other remuneration, directly or indirectly, in connection with the mortgage or renewal;
  2. whether it has paid or will or may pay a fee or other remuneration, directly or indirectly, to another person or entity in connection with the mortgage or renewal; and
  3. if a fee or other remuneration has been or will or may be received or paid as described in clause (a) or (b) , the identity of the payer or payee, as the case may be, and, if the remuneration is other than a fee, the nature of that remuneration.

(2) Subject to subsection (3) , the disclosure required by subsection (1) shall be made at the earliest opportunity and no later than two business days before the earlier of,

  1. the borrower signing a commitment; and
  2. the borrower signing a mortgage instrument,

or, in the case of a renewal of a mortgage, no later than two business days before the lender and borrower enter into a mortgage renewal agreement.

(3) The time period set out in subsection (2) may be waived in writing by the borrower and, if it is, the disclosure under subsection (1) shall be made before the borrower signs a commitment or mortgage instrument.

(4) A brokerage shall obtain the borrower's written acknowledgement that the brokerage disclosed the information required by subsection (1) .

Disclosure to borrower re risks, benefits

32. (1) A brokerage shall disclose in writing to the borrower the risks and benefits of each mortgage that the brokerage proposes.

(2) Subject to subsection (3) , the disclosure required by subsection (1) shall be made at the earliest opportunity and no later than two business days before the earlier of,

  1. the borrower signing a commitment; and
  2. the borrower signing a mortgage instrument.

(3) The time period set out in subsection (2) may be waived in writing by the borrower and, if it is, the disclosure under subsection (1) shall be made before the borrower signs a commitment or mortgage instrument.

(4) Subsection (1) does not apply where the borrower is a specified person or entity.

Disclosure to borrower re conflict of interest

33. (1) A brokerage shall disclose in writing to the borrower,

  1. the nature of its relationship with the lender or, in the case of a syndicated mortgage, each lender;
  2. if the mortgage is not a syndicated mortgage, the proportion of mortgages which the brokerage has arranged with the lender in the last calendar year, expressed as a percentage of the total number of mortgages arranged by the brokerage in the last calendar year;
  3. the number of lenders, other than lenders in syndicated mortgages, with whom the brokerage arranged mortgages in the last calendar year; and
  4. any conflict of interest or potential conflict of interest that the brokerage, or a broker or agent authorized to deal or trade in mortgages on the brokerage's behalf, may have in relation to the mortgage.

(2) Subject to subsection (3) , the disclosure required by subsection (1) shall be made at the earliest opportunity and no later than two business days before the earlier of,

  1. the borrower signing a commitment; and
  2. the borrower signing a mortgage instrument.

(3) The time period set out in subsection (2) may be waived in writing by the borrower and, if it is, the disclosure under subsection (1) shall be made before the borrower signs a commitment or mortgage instrument.

(4) A brokerage shall obtain the borrower's written acknowledgment that the brokerage disclosed the information required by subsection (1) .

Reverse mortgage, borrower's independent legal advice

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

(2) The statement required by subsection (1) must be received by the brokerage before the earlier of,

  1. the borrower signing a commitment; and
  2. the borrower signing a mortgage instrument.

(3) In this section,

“reverse mortgage” means a mortgage in which,

  1. the money advanced is not required to be repaid until the occurrence of one or more of,
    1. the death of the borrower,
    2. the acquisition by the borrower of another dwelling for use as the borrower's principal residence,
    3. the sale of the mortgaged property,
    4. the borrower vacating the mortgaged property to live elsewhere with no reasonable prospect of returning, or
    5. the lender exercising the legal right to take possession of the mortgaged property under the terms of the mortgage, and
  2. while the borrower continues to occupy the mortgaged property as his or her principal residence,
    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 full or partial repayment of the principal is due or capable of becoming due, or
    3. although interest payments and partial repayment of the principal may become due, full repayment of the principal is not due or capable of becoming due.
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Disclosure to Lenders

Disclosure to lender re fees

35. (1) A brokerage shall disclose in writing to a lender any amounts that will be payable by the lender 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 required by subsection (1) shall be made at the earliest opportunity and no later than before the brokerage provides any services to the lender or incurs any expenses on behalf of the lender for which the brokerage will seek payment from the lender.

(3) Subsection (1) does not apply where the lender is another brokerage or a financial institution.

Disclosure to lender re risks, benefits

36. (1) A brokerage shall disclose in writing to the lender or, in the case of a syndicated mortgage, to each lender, the risks and benefits of each mortgage that the brokerage proposes.

(2) Subject to subsection (3) , the disclosure required by subsection (1) shall be made at the earliest opportunity and no later than two business days before the earliest of,

  1. the brokerage receiving money from the lender;
  2. the brokerage entering into an agreement to receive money from the lender;
  3. the lender signing a commitment; and
  4. the brokerage issuing a commitment on the lender's behalf.

(3) The time period set out in subsection (2) may be reduced to one business day before the earliest of clauses (2) (a) , (b) , (c) and (d) with the written consent of the lender.

(4) Subsection (1) does not apply where the lender is a specified person or entity.

Disclosure to lender re conflict of interest

37. (1) A brokerage shall disclose in writing to the lender or, in the case of a syndicated mortgage, to each lender,

  1. the nature of its relationship with each borrower; and
  2. any conflict of interest or potential conflict of interest that the brokerage, or a broker or agent authorized to deal or trade in mortgages on the brokerage's behalf, may have in relation to the mortgage.

(2) Subject to subsection (3) , the disclosure required by subsection (1) shall be made at the earliest opportunity and no later than two business days before the earliest of,

  1. the brokerage receiving money from the lender;
  2. the brokerage entering into an agreement to receive money from the lender;
  3. the lender signing a commitment; and
  4. the brokerage issuing a commitment on the lender's behalf.

(3) The time period set out in subsection (2) may be reduced to one business day before the earliest of clauses (2) (a) , (b) , (c) and (d) with the written consent of the lender.

(4) A brokerage shall obtain the lender's written acknowledgment that the brokerage disclosed the information required by subsection (1) .

(5) Subsections (1) and (4) do not apply where the lender is another brokerage or a financial institution.

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Disclosure to Investors

Disclosure to investor re fees

38. (1) A brokerage shall disclose in writing to an investor any amounts that will be payable by the 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 required by subsection (1) shall be made at the earliest opportunity and no later than before the brokerage provides any services to the investor or incurs any expenses on behalf of the investor for which the brokerage will seek payment from the investor.

Disclosure to investor re risks, benefits

39. (1) A brokerage shall disclose in writing to an investor for whom the brokerage is acting the risks and benefits of any trade in mortgages that the brokerage proposes.

(2) Subject to subsection (3) , the disclosure required by subsection (1) shall be made at the earliest opportunity and no later than two business days before the trade completion date.

(3) The time period set out in subsection (2) may be reduced to one business day before the trade completion date with the written consent of the investor.

(4) Subsection (1) does not apply where the investor is a specified person or entity.

Disclosure to investor re conflict of interest

40. (1) A brokerage shall disclose in writing to the investor for whom the brokerage is acting,

  1. the nature of the brokerage's relationship with the person or entity with whom the brokerage is trading in mortgages on behalf of the investor; and
  2. any conflict of interest or potential conflict of interest that the brokerage, or a broker or agent authorized to deal or trade in mortgages on the brokerage's behalf, may have in relation to the mortgage or investment in a mortgage being traded.

(2) Subject to subsection (3) , the disclosure required by subsection (1) shall be made at the earliest opportunity and no later than two business days before the trade completion date.

(3) The time period set out in subsection (2) may be reduced to one business day before the trade completion date with the written consent of the investor for whom the brokerage is acting.

(4) A brokerage shall obtain a written acknowledgment from the investor for whom the brokerage is acting that the brokerage disclosed the information required by subsection (1) .

(5) Subsections (1) and (3) do not apply where the investor for whom the brokerage is acting is another brokerage or a financial institution.

Disclosure to investor re conflict of interest — brokerage acting as principal

41. (1) A brokerage that trades in mortgages on its own behalf shall disclose in writing to an investor to whom the brokerage sells or with whom the brokerage exchanges a mortgage any conflict of interest or potential conflict of interest that the brokerage, or a broker or agent authorized to deal or trade in mortgages on the brokerage's behalf, may have in relation to the mortgage or investment in a mortgage being traded.

(2) Subject to subsection (3) , the disclosure required by subsection (1) shall be made at the earliest opportunity and no later than two business days before the trade completion date.

(3) The time period set out in subsection (2) may be reduced to one business day before the trade completion date with the written consent of the investor with whom the brokerage is trading.

(4) A brokerage shall obtain a written acknowledgment from the investor with whom the brokerage is trading that the brokerage disclosed the information required by subsection (1) .

(5) Subsections (1) and (3) do not apply where the investor with whom the brokerage is trading is another brokerage or a financial institution or where another brokerage is acting for that investor in the trade.

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Documents

Documents to lender, investor

42. (1) A brokerage shall give a lender or an investor who is buying or acquiring by way of exchange a mortgage or an investment in a mortgage, other than an investor for whom another brokerage is acting, the following documents and information with respect to a mortgage or a investment 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 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 property is not available as described in paragraph 3, documentary evidence of the property's value, 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 lender or 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 whether to lend money on the security of the property or to invest in the mortgage.

(2) Subject to subsection (3) , the documents and information required by subsection (1) shall be given at the earliest opportunity and no later than two business days before the earliest of,

  1. the brokerage receiving money from the lender or investor;
  2. the brokerage entering into an agreement to receive money from the lender or investor;
  3. the lender signing a commitment;
  4. the brokerage issuing a commitment on the lender's behalf;
  5. the money being advanced to the borrower; and
  6. the trade completion date.

(3) The time period set out in subsection (2) may be reduced to one business day before the earliest of clauses (2) (a) , (b) , (c) , (d) , (e) and (f) with the written consent of the lender or investor.

(4) A brokerage shall obtain the lender's or investor's written acknowledgement that the brokerage disclosed the documents and information required by subsection (1) .

(5) Subsections (1) and (4) do not apply where the lender or investor is a specified person or entity or, in the case of the investor with whom the brokerage is trading in mortgages when the brokerage is acting on its own behalf, if another brokerage is acting for that investor in the trade.

Documents to lender on renewal of mortgage

43. (1) A brokerage shall give a lender the following documents and information 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 or agent.
  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 whether to renew the mortgage.

(2) Subject to subsection (3) , the documents and information required by subsection (1) shall be given at least two business days before the lender enters into a mortgage renewal agreement.

(3) The time period set out in subsection (2) may be reduced to one business day before the lender enters into a mortgage renewal agreement with the written consent of the lender.

(4) A brokerage shall obtain the lender's written acknowledgement that the brokerage disclosed the documents and information required by subsection (1) .

(5) Subsections (1) and (4) do not apply where the lender is a specified person or entity.

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Disclosure if Mortgage Previously in Default

Disclosure if mortgage previously in default

44. (1) A brokerage shall not sell, 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 has informed the investor of the amount and length of the default.

(2) A brokerage shall obtain the investor's written acknowledgement that the brokerage disclosed the information required by subsection (1) .

Rules re Disclosures, Etc.

Rules re disclosures, etc.

45. (1) A disclosure of information required by this Regulation may be based on an assumption or estimate if,

  1. the assumption or estimate is reasonable;
  2. the information required to be disclosed cannot be known by the brokerage when it makes the disclosure; and
  3. the brokerage advises the person or entity to whom the disclosure is made that the information being disclosed is based on an assumption or estimate.

(2) A disclosure, waiver, consent or acknowledgement that is required by this Regulation to be in writing must be in plain language that is clear and concise and it must be presented in a manner that is logical and likely to bring to the recipient's attention the information that is required to be conveyed.

(3) If the recipient of a disclosure, waiver, consent or acknowledgement required by this Regulation consents in writing, the disclosure, waiver, consent or acknowledgement may be provided by electronic means in an electronic format that the recipient can retrieve and retain.

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Part VI
Trust Funds

Trust funds

46. All money that a brokerage receives from a borrower, lender or investor in connection with its carrying on business is deemed to be money in trust, other than money,

  1. payable to the brokerage for its services or expenses; or
  2. payable under a mortgage for which the brokerage is the mortgage lender.

Trust account

47. (1) A brokerage that receives money in trust shall maintain in Ontario a trust account designated as the “Mortgage Brokerage Trust Account” in,

  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; or
  3. a corporation registered under the Loan and Trust Corporations Act.

(2) A brokerage shall not maintain more than one trust account without the Superintendent's written consent, obtained in advance.

(3) A brokerage shall give the Superintendent a copy of the trust account agreement with the financial institution within 10 days after the effective date or the date the account is opened, whichever is later.

(4) A brokerage shall give the Superintendent a copy of any changes to the trust account agreement, within five days after the change is made.

Receipt of trust funds

48. (1) A brokerage shall maintain money in trust separate and apart from money belonging to the brokerage.

(2) A brokerage shall deposit money that it receives in trust into the brokerage's trust account within two business days after its receipt.

(3) A brokerage shall give the person or entity from whom the brokerage receives money in trust a written statement which clearly discloses the following:

  1. The amount of money in trust that came into the brokerage's hands.
  2. The date the money came into the brokerage's hands.
  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 of receiving the money, including the mortgage to which the money in trust relates, if any.
  5. The terms on which the brokerage holds the money in trust.
  6. The name of the broker or agent who received the money on behalf of the brokerage.

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

(5) A brokerage shall not disburse any money in trust except in accordance with the terms upon which the money in trust was received by the brokerage.

Records of trust money transactions

49. A brokerage shall make a written record of the receipt of all money in trust that comes into the brokerage's hands in connection with its carrying on business, and of every transaction relating to that money, including the following information:

  1. The information described in paragraphs 1 to 6 of subsection 48 (3) .
  2. With respect to every deposit into the trust account maintained under section 47,
    1. the amount of the deposit,
    2. the date the deposit was made,
    3. the name of the person or entity from whom the money was received, and
    4. the purpose of the deposit, including the mortgage, if any, to which the money relates.
  3. With respect to every disbursement from the trust account maintained under section 47,
    1. the amount of the disbursement,
    2. the date the disbursement was made,
    3. the name of the person or entity to whom the money was disbursed, and
    4. the purpose of the disbursement, including the mortgage, if any, to which the disbursement relates.
  4. With respect to every payment of interest on money held in the trust account maintained under section 47,
    1. a way of identifying the money in trust to which the interest relates,
    2. the amount of the interest, and
    3. the date the interest was paid.

Monthly reconciliation

50. (1) A brokerage shall prepare a trust account reconciliation statement for each trust account maintained under section 47 not later than,

  1. in the case of a brokerage that receives a monthly account statement from the financial institution where the account is maintained, 30 days after the date the monthly account statement is received; and
  2. in any other case, 30 days after the last day of each month.

(2) The reconciliation statement shall,

  1. identify the differences, if any, between the brokerage's records and the records of the financial institution where the account is maintained, as of,
    1. the date of the account statement from the financial institution, if clause (1) (a) applies, and
    2. the last day of the month to which the reconciliation statement relates, if clause (1) (b) applies; and
  2. identify the balances in the trust account that are owing to each person or entity as of,
    1. the date of the account statement from the financial institution, if clause (1) (a) applies, and
    2. the last day of the month to which the reconciliation statement relates, if clause (1) (b) applies.

(3) The brokerage's principal broker shall, within the applicable time set out in subsection (1) ,

  1. review the reconciliation statement; and
  2. sign and date the reconciliation statement to indicate that he or she has reviewed it and certifies that it is accurate.

Shortfall

51. If a brokerage determines that there is a shortfall in the trust account maintained under section 47, the brokerage shall promptly report the shortfall to the Superintendent.

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Part VII
Reports and Recordkeeping

Address for service

52. A brokerage shall at all times maintain a mailing address in Ontario that is suitable to permit service by registered mail, and shall report any change in its address to the Superintendent within five days after it occurs.

E-mail address

53.A brokerage shall at all times maintain an e-mail address, and shall report any change in its e-mail address to the Superintendent within five days after it occurs.

Places of business

54. (1) A brokerage shall report to the Superintendent the following:

  1. A change in the location of its principal place of business in Ontario.
  2. A change in the location of any its offices in Ontario that are open to the public.
  3. The opening or closing of an office in Ontario that is open to the public.

(2) If a brokerage's principal place of business in Ontario is in 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.

(3) A report under subsection (1) shall be made within five days after the change occurs.

Change in directors, officers, partners

55. (1) A brokerage shall report to the Superintendent the following:

  1. If the brokerage is a corporation, a change in its directors or officers.
  2. If the brokerage is a partnership, a change in its partners.

(2) A report under subsection (1) shall be made within five days after the change occurs.

Change in significant interest in corporation

56. (1) A brokerage that is a corporation shall report to the Superintendent the following:

  1. The identity of any person or entity who acquires beneficial ownership or control of more than 10 per cent of the brokerage's equity shares issued and outstanding.
  2. The identity of any persons or entities that are associated with each other and that together acquire beneficial ownership or control of more than 10 per cent of the brokerage's equity shares issued and outstanding.
  3. The identity of any person or entity who acquires beneficial ownership or control of more than 50 per cent of the brokerage's equity shares issued and outstanding.
  4. The identity of any persons or entities that are associated with each other and that together acquire beneficial ownership or control of more than 50 per cent of the brokerage's equity shares issued and outstanding.

(2) A report under subsection (1) shall be made within five days after the event occurs.

(3) In calculating the total number of equity shares of the brokerage beneficially owned or controlled for the purposes of this section, the total number shall be calculated as the total number of all shares beneficially owned or controlled, but each share that carries the right to more than one vote shall be calculated as the number of shares equalling the total number of votes it carries.

(4) For the purposes of this section, one person or entity is associated with another person or entity in any of the following circumstances:

  1. One person is a corporation and the other person is a director or officer of the corporation.
  2. One person is a corporation and the other person or entity controls the corporation, directly or indirectly.
  3. Both persons are corporations and are controlled, directly or indirectly, by the same person or entity.
  4. Both persons or entities are members of the same voting trust relating to shares of a corporation.
  5. One entity is a partnership and the other person or entity is a partner in the partnership.
  6. Both persons or entities are partners in the same partnership.
  7. Both persons or entities are associated as described in paragraphs 1 to 6 with the same person or entity.

(5) In this section,

“equity share” means a share of a class or series of shares of a corporation that carries a voting right either under all circumstances or under circumstances that have occurred and are continuing.

Annual information return

57. By March 31 of each year, a brokerage shall submit to the Superintendent an information return for the previous calendar year in a form approved by the Superintendent.

Financial records

58. (1) A brokerage shall submit to the Superintendent the following:

  1. A copy of the brokerage's financial statements for its last fiscal year, audited by a licensed public accountant.
  2. A copy of the brokerage's trust account reconciliation for its last fiscal year, audited by a licensed public accountant.

(2) The financial statements must be prepared in accordance with generally accepted accounting principles, as recommended by the Accounting Standards Board of the Canadian Institute of Chartered Accountants and set out in the Handbook of the Canadian Institute of Chartered Accountants, and must include,

  1. a balance sheet as of the end of the fiscal year;
  2. a statement of income for the fiscal year;
  3. a statement of cash flows for the fiscal year; and
  4. a statement of retained earnings for the fiscal year.

(3) A brokerage is not required to submit audited financial statements or a trust account reconciliation under this section if,

  1. the brokerage did not hold any money in trust during the fiscal year; and
  2. the brokerage submits a statement to the Superintendent, in a form approved by the Superintendent, stating that it did not hold any money in trust during the fiscal year.

(4) The documents required by subsection (1) or statement required by clause (3) (b) must be submitted within 120 days after the end of the fiscal year of the brokerage to which they relate.

Recordkeeping

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

  1. Complete and accurate financial records of its activities in Ontario.
  2. Complete and accurate records of every mortgage application, mortgage instrument or mortgage renewal agreement received, arranged or entered into by it.
  3. Complete and accurate records of all documents or written information provided to or obtained from a borrower, lender, investor or other person or entity pursuant to a requirement established under the Act.
  4. Complete and accurate records of every agreement entered into by it.

(2) A brokerage's financial records shall distinguish between money and assets pertaining to the operation of the brokerage and money held in trust.

(3) A brokerage shall retain all documents and records that relate to a mortgage or mortgage renewal agreement, for at least six years after the date of maturity of the mortgage or renewal.

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

(5) A brokerage shall retain all the documents and records described in subsections (3) and (4) at the brokerage's 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 other approved place at the earliest opportunity after they are no longer needed at the other place of business.

(6) A brokerage shall take adequate precautions, appropriate to the form of the records, for guarding against their falsification.

(7) If a brokerage retains records in electronic form, those records need not be retained at a location described in subsection (5) , but must be able to be retrieved, in a form that is understandable and within a reasonable time, from such location.

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