JUNE 2004

Dear Stakeholder:

The Ministry of Finance is pleased to provide you with a copy of this consultation paper on proposals to improve the Mortgage Brokers Act.

The business of mortgage brokers is changing along with the broader financial services sector. We want to make sure the legislation keeps current with these emerging trends. Doing so will help give consumers the protection they need and create a climate where mortgage brokers can grow under responsive, fair and modern regulation.

Your views are important and will assist in formulating legislative proposals in this area. We welcome the input of consumers, mortgage professionals and others in this process.

The final section of this paper contains information on how you can submit comments on these proposals.

Thank you for taking the time to read this consultation paper. I very much appreciate your input to this important review.

signature of Mike Colle
Mike Colle
Parliamentary Assistant to the Minister of Finance


      Dealing in Mortgages
      Mortgage Transactions on Land Outside Ontario
      Employees and Agents
      Classes of Registration
      Deemed Registration of Real Estate Brokers
      Educational Requirements
      Educational Exemptions for Certain Professionals
      Corporate Registrants
      Foreign Ownership of Brokerages
      Continuous Registration
      Borrower Disclosure
      Investor Disclosure
      Syndicated Mortgages
      Disclosure of Registration
      Errors and Omissions Insurance
      Practice Standards
      Location of Business
      Books and Records



Improving the Mortgage Brokers Act is being circulated to solicit comments and suggestions on how to meet the needs of consumers and improve consumer and investor protection in this important sector of financial services.

For many Ontarians, a mortgage on their home is the largest and most important debt they will incur in their lifetime. In recent years, consumers have enjoyed many new and innovative mortgage products and services. Mortgage brokers play an increasing role in helping consumers with their borrowing needs.

Ontario needs to ensure its legislation continues to provide consumers with the safeguards they need. At the same time, this legislation must give mortgage brokers fair and effective rules that encourage growth and innovation. To achieve these goals, the government is consulting on suggestions to improve the Mortgage Brokers Act which has not been significantly updated during the past 30 years.

The policy objectives of this review are to:

  • Improve consumer protection
  • Streamline regulatory approaches and eliminate regulatory gaps
  • Ensure that regulation is cost effective and provides value-added benefits
  • Harmonize with other regulatory bodies and jurisdictions where appropriate

It is the government's intention to introduce a new Mortgage Brokers Act. As a result, this consultation is seeking views on all aspects of mortgage broker regulation.


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Mortgage brokers act as intermediaries between borrowers who need mortgage loans and companies and individuals with money to lend. Increasingly, financial institutions such as banks, trust companies and finance companies use mortgage brokers to help them locate potential borrowers. Some mortgage brokers work for private investors who often consider mortgage investments as a component of their investment portfolio.

Mortgage brokers may also administer mortgages for investors by collecting and remitting mortgage payments, or they may arrange mortgage syndications in which several individuals invest in a single mortgage.

According to a survey conducted in 2003 by the Canada Mortgage and Housing Corporation, it is estimated that 26% of home buyers in Canada used a mortgage broker when arranging a mortgage, compared to 21% in 2002. Home buyers in Ontario are estimated to be the second-highest users of brokers (27%), after British Columbia (32%).

The Superintendent of Financial Services at the Financial Services Commission of Ontario (FSCO) is responsible for administering and enforcing the Mortgage Brokers Act (the Act). As of May 2004 there were 605 registrants under the Act. Of these, 507 were corporations, 95 were sole proprietors, and three were partnerships. This does not include approximately 8,400 real estate brokers who were deemed to be registered under the Mortgage Brokers Act because they were registered under the Real Estate and Business Brokers Act. There were also 5,294 individuals authorized to deal in mortgages on behalf of a registered mortgage broker, either as an employee or an agent.


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Dealing in Mortgages

No person can carry on business as a mortgage broker unless they are registered by the Superintendent under the Mortgage Brokers Act.

The term "mortgage broker" is defined to mean a person who:

  1. Carries on the business of lending money on the security of real estate, whether the money is their own or someone else's;
  2. Claims to be a mortgage broker, including by advertisement, notice or sign; or
  3. Carries on the business of dealing in mortgages.

It is not necessary for a person to engage in all three activities in order to be considered a mortgage broker.

The expression "dealing in mortgages" is not defined in the legislation but would include the following activities:

  • Acquiring mortgages for the purpose of reselling or trading them to others
  • Arranging or negotiating mortgages
  • Making commitments for mortgage financing
  • Arranging assignments of mortgages

Certain activities do not constitute dealing in mortgages. For example, if a person registered under the Real Estate and Business Brokers Act identifies a source of funding to a borrower and directs the borrower to it for a fee, this activity does not constitute dealing in mortgages under the Mortgage Brokers Act.

Similarly, a person who purchases a mortgage loan and holds it as an investment, even if he or she takes steps to enforce payment, is not considered to be carrying on the business of dealing in mortgages.

Some mortgage brokers have established related or affiliated companies to carry on mortgage administration services for their clients. Administration services include collecting mortgage payments, property taxes, and insurance; remitting funds to investors; and conducting property inspections. In these cases, it is important to provide consumers with the protections set out in the legislation regarding mortgage administration. This could be achieved by ensuring the rules are applicable to these companies. The legislation could exempt mortgage administration undertaken by others such as companies affiliated with a bank or other regulated financial institution.

Although current legislation does not specifically refer to "reverse mortgages", persons who deal in reverse mortgages are considered to be dealing in mortgages. A reverse mortgage is a marketing term used to describe a mortgage on a principal residence taken out by a retiree in order to convert the equity in that home into cash which can be used for a variety of purposes. Unlike a traditional mortgage that decreases in size as payments are made, a reverse mortgage increases in size, as the entire loan and compounded interest are due at a future date.

More and more financial services professionals are expanding their product lines in an effort to provide their customers with a one-stop shopping experience. It is important to ensure that those who engage in mortgage brokering are properly regulated and that the public is properly protected. For these reasons, it is desirable for the Act to provide a more comprehensive list of activities that are subject to regulation. The objective is not to expand regulatory reach, but to more clearly define activities that require registration under the Mortgage Brokers Act. Greater precision may also assist in achieving a more cost-effective use of regulatory resources required to prosecute unregistered activity.

The definition of "mortgage broker" could be amended to specifically include someone who:

  • Acquires mortgages for the purpose of reselling or trading them to others
  • Arranges or negotiates mortgages
  • Makes commitments for mortgage financing
  • Arranges assignments of mortgages
  • Administers mortgages
  • Deals in reverse mortgages

The definition could exclude:

  • A real estate broker who refers a source of funding to a borrower for a fee
  • An affiliate of certain entities such as a regulated financial institution (bank, insurance, loan and trust company) which administers mortgages

  1. Do you have any further recommendations about inclusions or exclusions to a definition of "mortgage broker"?

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The Mortgage Brokers Act provides that certain entities are exempt from all or most provisions of the Act even though their activities may include mortgage brokering. These entities include financial institutions such as insurance companies, loan and trust corporations, banks, and credit unions. The policy rationale for excluding these entities is that they are subject to consumer protection and other regulatory requirements under their governing statutes.

Currently, if a loan or trust corporation is registered under the Real Estate and Business Brokers Act, it is not exempt from the provisions of the Mortgage Brokers Act. It is suggested that all loan and trust corporations be exempted from the Mortgage Brokers Act, regardless of their registration status under the Real Estate and Business Brokers Act.

The list of exemptions in the Mortgage Brokers Act does not recognize a "retail association" as recently defined in the federal Cooperative Credit Associations Act. Consequently, a retail association is not able to enjoy the same exemption as other regulated financial institutions and would need to register under the Mortgage Brokers Act.

The Mortgage Brokers Act exempts non-resident insurance companies lending on the security of first mortgages or acquiring first mortgages on Ontario real estate under section 22 of the Extra-Provincial Corporations Act. It is not clear whether there is a continuing public policy purpose to retaining this exemption.

The Act also exempts employees entering into mortgage transactions on behalf of their employers. The employers, however, would not be exempt from application of the Act unless they were one of the exempt entities. The scope of this exemption is not always clear and consideration is being given to replacing it with an exemption for employees of entities that are exempt from application of the Act.

  1. Do you have any recommendations regarding the list of entities exempt from application of the Act?

Mortgage Transactions on Land Outside Ontario

The Mortgage Brokers Act contains safeguards to protect consumers who invest in mortgages on a lot or unit of land in a subdivision located outside Ontario. These provisions apply to land divided or proposed to be divided into five or more lots or other units including condominium units.

Under the rules, a registered mortgage broker must be involved in negotiating the transaction. As well, the investor must receive a prospectus that has been approved by the Superintendent. The investor has the right to rescind the contract if the prospectus requirements are not met. Advertisements for such mortgages must also be pre-approved by the Superintendent. There are exemptions from these requirements if the investor is a financial institution or if the amount of the mortgage loan is $100,000 or more.

These provisions were enacted in 1975 and parallelled the provisions in the Real Estate and Business Brokers Act governing the sale of land located outside Ontario. They were intended to protect Ontario consumers from fraudulent land development schemes in other jurisdictions by providing a prospectus requirement comparable to that under the Securities Act. The provisions in the Real Estate and Business Brokers Act were repealed in 1994 on the basis that Ontarians buying land outside the province would be adequately protected by the laws of other jurisdictions.

The requirements in the Mortgage Brokers Act were essentially rendered unnecessary by revisions to the regulations in 1992 that impose disclosure requirements in favour of investors. Those disclosure requirements apply to mortgage broker activity in Ontario whether the land is inside or outside Ontario.

  1. What concerns, if any, would you have if the prospectus requirements for mortgage transactions on land outside Ontario were repealed?

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Employees and Agents

No one may carry on business as a mortgage broker unless they are registered under the Mortgage Brokers Act. However, registered mortgage brokers often authorize employees or other persons (commonly referred to as "agents") to deal in mortgages on their behalf. There are no restrictions in the Act governing the activities of an employee or mortgage agent. Mortgage brokers must notify the Superintendent of the names of employees or agents dealing in mortgages and there are now 5,294 individuals dealing in mortgages on behalf of 605 registered mortgage brokers.

Currently, there are no proficiency standards required of a person who is authorized to deal in mortgages on behalf of a registered broker unless the person is an officer or director of a corporate registrant. As well, there are no statutory sanctions or enforcement tools available to the regulator to deal directly with such people if necessary.

Consumers need to be assured that individuals who deal in mortgages are properly trained and supervised and meet minimum proficiency requirements. There are two options for dealing with this issue.

One option is to require anyone who deals in mortgages on behalf of a mortgage broker to register and meet minimum proficiency standards under the Act. These individuals would have clear obligations to comply with the legislation. Furthermore, their activities would be supervised by a mortgage broker and the regulator would be given powers to take regulatory action where necessary. This option could be implemented in one of two ways. The mortgage broker could be made responsible for ensuring that only qualified candidates apply for registration (ie. conducting background criminal checks, confirming completion of required educational courses, assessing the character and competence of the applicant). Alternatively, the regulator could take on these functions directly.

A second option is to require everyone who deals in mortgages to be registered as a mortgage broker under the Act. In this way, consumers would benefit from a single standard of proficiency and competency. This would not preclude mortgage brokers from hiring other mortgage brokers as employees; however, it would ensure that only qualified persons would be dealing in mortgages with the public.

Under both options, it would be desirable to prohibit a person from dealing in mortgages on behalf of more than one mortgage broker. This would help ensure that all individuals would be properly supervised and accountable for their activities.

  1. Are you in favour of requiring employees and agents who deal in mortgages on behalf of mortgage brokers to register under the Act? If so, how would you implement this?

  2. Alternatively, should everyone who deals in mortgages be required to qualify as a registered mortgage broker?

Classes of Registration

A mortgage broker practice can include different activities that may require different levels of expertise and present different levels of risk to the consumer. Most mortgage brokers do not deal in more complex transactions. For example, only about five per cent of mortgage brokers are involved in syndications and administration of mortgages.

In the past, the industry has suggested that different classes of registration be established. Registration, education and proficiency, reporting and other regulatory requirements could be streamlined to reflect the risk inherent in each class. Classes of registration would be structured differently depending on which model is selected to deal with employees and agents authorized to deal in mortgages on behalf of mortgage brokers (discussed in the previous section).

Classes of registration could include:


Mortgage Agent - those people who are currently dealing in mortgages on behalf of a registered mortgage broker - they would be required to be supervised by a broker

Standard Broker - a mortgage broker who would be permitted to deal in all aspects of mortgage brokering except administration of mortgages and syndications

Specialist Broker - a mortgage broker who would be permitted to deal in all aspects of mortgage brokering including administration of mortgages and syndications

An alternative approach would be to prohibit mortgage brokers from holding themselves out as specialists in any type of mortgage brokering unless it is an area of specialization recognized by the Act and they have met the requisite qualifications.

  1. What are your views on establishing classes of registration?

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Deemed Registration of Real Estate Brokers

Currently every person who is registered as a real estate broker under the Real Estate and Business Brokers Act is deemed to be registered under the Mortgage Brokers Act. Once deemed, a real estate broker may legally undertake any mortgage brokering activity. This means that real estate brokers do not need to apply for registration under the Mortgage Brokers Act and do not need to meet other conditions, such as educational requirements. Nor do they provide additional undertakings as normally required of registrants by the Superintendent. Although real estate brokers may have some mortgage broker training as part of their real estate training, there has been no recent review of the adequacy of this training for mortgage broker purposes.

Despite the deeming provision, there are currently 115 real estate brokers who have elected to register under the Mortgage Brokers Act. This represents slightly more than 1% of the approximately 8,400 real estate brokers in the province.

While the intent of the deemed registration is to avoid unnecessary regulatory overlap and duplication in two related industries, this approach has raised concerns about the clarity of the rules, the ability of business to follow them and the impact on consumer protection.

Real estate brokers who deal in mortgages are still required to comply with the requirements of the Mortgage Brokers Act. This means they must provide disclosure to borrowers, give notification when employing persons to deal in mortgages, and comply with all filing requirements. Many real estate brokers seem unaware or unclear as to their specific obligations under the Mortgage Brokers Act. Some, through misunderstanding, may believe they are exempt from all requirements under the Act because of the deeming provision.

Some real estate brokers have established separate corporate entities to carry on their mortgage brokering business. However, some have mistakenly assumed that these entities are subject to the deeming provision. On the contrary, the deeming provision is not available to these companies since the deeming provision only applies to a registered real estate broker.

Because real estate brokers are not required to register under the Mortgage Brokers Act, the regulator does not have a reliable means to determine which real estate brokers are also dealing in mortgages. The Real Estate Council of Ontario (RECO) regulates real estate brokers, but RECO is not responsible for administering provisions of the Mortgage Brokers Act. There are currently no provisions in the Mortgage Brokers Act for FSCO to enter into information-sharing agreements with RECO.

A further issue is FSCO's inability to appropriately sanction real estate brokers who are dealing in mortgages in a manner that may be detrimental to consumers. There is no mechanism for FSCO to take appropriate enforcement action, or if necessary, to revoke the deemed registration of real estate brokers under the Mortgage Brokers Act.

In summary, the lack of clarity and consistency of the current regulatory approach is making it difficult for business to comply and may be providing unequal protection for consumers.

There are several possible approaches to deal with these issues. One approach would be to retain the deeming provision but provide greater clarity in the legislation about the obligations of real estate brokers to comply with the provisions of the Act. At the same time, the Act could set out more clearly who qualifies for the deeming provision. Also, greater co-operation with RECO could be facilitated, including information-sharing protocols and joint approaches to educational requirements. Powers to revoke deemed registration in appropriate circumstances could be given to the mortgage broker regulator.

Another approach would be to repeal the deeming provision and require all real estate brokers who wish to deal in mortgages to register under the Mortgage Brokers Act, although the Act would contain appropriate exemptions from some requirements to minimize overlap and duplication. For example, real estate brokers could be exempt from some or all of the educational requirements if it were determined that the real estate broker educational program provided an acceptable level of proficiency.

A third approach would be to amend the deeming provision to allow real estate brokers to employ the deeming provision only for limited mortgage brokering activities. For example, real estate brokers who are deemed under the Act could be restricted to mortgage brokering only in respect of real estate they are trading in.

  1. Would you support the removal of the deeming provision for real estate brokers provided that provisions were in place to ensure there was no overlap and duplication in regulatory requirements already imposed by the Real Estate and Business Brokers Act?

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Educational Requirements

In order to be registered as a mortgage broker, applicants must successfully complete an educational program approved by the Superintendent. Seneca College, the current provider of this educational program, requires participants to have graduated from a community college or university. The program takes two semesters to complete on a full-time basis. The mortgage broker program must be completed no more than two years prior to an application for registration in order to ensure the training is current. There is no requirement for an apprenticeship period or for continuing education.

The content and delivery of the educational program will need to be reviewed, particularly if a system of classes of registration is adopted, in which case the program requirements should reflect corresponding levels of proficiency. In addition, it is proposed the Superintendent be given more flexibility to recognize equivalent proficiency or experience on a case-by-case basis.

Educational Exemptions for Certain Professionals

Members of the Law Society of Upper Canada and persons licensed under the Public Accountancy Act are exempt from the educational requirements when registering as mortgage brokers. Since their training is not specifically related to the business of mortgage brokering, there is no assurance that lawyers and accountants would be able to carry on mortgage brokering activities with an appropriate level of proficiency.

To address this concern, it is proposed that these exemptions be removed and lawyers and licensed public accountants who wish to be registered as mortgage brokers be required to successfully complete an educational program pertaining to mortgage brokering approved by the Superintendent. The Superintendent would have the ability to recognize courses taken from professional programs in whole or in part. As a transitional measure, lawyers and accountants who have been registered for a given period prior to these changes could be grandfathered. This is expected to affect fewer than 70 lawyers and 80 public accountants who are currently registrants under the Mortgage Brokers Act.

  1. Do you have any additional recommendations concerning the proposed removal of the educational exemptions for lawyers and accountants?

Corporate Registrants

The Mortgage Brokers Act does not require registrants to be incorporated. Registration may be granted to a corporation, individual, or partnership. As noted earlier, most of the registrants under the Act are corporations.

It may be desirable to require mortgage brokers to incorporate if they engage in more complex aspects of the mortgage business such as administration and syndications. Furthermore, these entities could be required to maintain minimum levels of capital to ensure they have the financial resources to carry out their obligations, especially where they are administering mortgages on behalf of consumers. The amount of capital could be linked to the amount of assets under administration and to the amount of the insurance deductible on errors and omissions insurance coverage.

  1. What level of capital would you recommend for applicants who administer or syndicate mortgages if they were required to incorporate?

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Foreign Ownership of Brokerages

The Mortgage Brokers Act prohibits a corporation from carrying on business in Ontario if it is not incorporated in Ontario or another Canadian jurisdiction. No single non-resident may own more than 10% of the voting equity shares of a corporation, and no group of non-residents may own more than 25% of the voting equity shares of a corporation.

These provisions were introduced in 1973 in keeping with the foreign ownership policies of the period. These restrictions have been criticized as an impediment to investment in Ontario. Some have considered complex legal structures to circumvent these restrictions.

Ontario is the only provincial or territorial jurisdiction with similar ownership restrictions regarding mortgage brokers. A removal of the foreign ownership restrictions would harmonize Ontario's regulatory environment with that of other jurisdictions, as well as with the spirit of the North American Free Trade Agreement and the General Agreement on Trade in Services. It may also encourage greater competition and innovation in the mortgage broker sector.

  1. Do you have any concerns if Ontario permits foreign owned corporations to register under the Mortgage Brokers Act? What impact do you think the removal of the foreign ownership restrictions would have on the mortgage broker industry and on consumer protection?

Continuous Registration

Mortgage broker registrations expire one year after they are issued, so mortgage brokers are required to submit an application for renewal on an annual basis. In order to streamline the current system, it has been suggested that registration be valid until revoked. Instead of annual renewals of registration, registrants could be required to submit a fee and information requested by the regulator on an annual basis.

  1. In addition to replacing annual registration with a continuous registration system, are there other ways of reducing unnecessary regulatory burdens?

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Borrower Disclosure

In 1999, the Mortgage Brokers Act was amended to require disclosure to borrowers in accordance with updated, harmonized rules. These new rules are consistent with the Federal-Provincial-Territorial Agreement on Internal Trade. The objectives of the harmonized requirements are to provide uniform consumer protection across Canada, modernize laws to reflect changes in credit markets, reduce compliance costs, allow businesses to use the same procedures, credit advertisements and disclosure statements in all parts of the country, and result in fairer competition between provincially and federally regulated lenders.

The new provisions currently in the Mortgage Brokers Act have not yet been proclaimed into force pending the completion of accompanying regulations. The government will be consulting on regulations governing the cost of credit disclosure not only for the mortgage broker sector, but also the credit union and caisse populaire and insurance sectors. It is the government's intention to implement the new rules after providing the sectors with a reasonable transition period. The draft regulations will be released as part of a separate consultation process.

Investor Disclosure

Before receiving money or entering into an agreement to receive money from an investor, a mortgage broker must provide the investor with a completed disclosure statement. No money may be received unless it is for a mortgage on a specific property. As well, the investor must be provided with the following documents: a copy of the mortgage, an appraisal or other evidence of property value, a copy of the agreement of purchase and sale, and evidence of the borrower's ability to pay, as well as other information. The disclosure statement and supporting documents are not required for institutional investors such as another mortgage broker, an insurance company, a loan or trust corporation, a bank, a credit union, a finance company, or an approved lender under the National Housing Act (Canada).

Mortgage brokers are not permitted to offer any guarantee, whether directly or indirectly, with respect to an investment in mortgages. As well, a mortgage broker may not arrange the sale of a mortgage that has been in default at any time during the preceding year unless disclosure of the amount and length of the default is provided to the investor in writing.

  1. Do you have any suggestions to improve the investor disclosure requirements?

Syndicated Mortgages

Some mortgage brokers offer investments in syndicated mortgages to consumers. A syndicated mortgage is one where two or more investors lend money on the security of real estate.

Syndicated mortgages on commercial properties can be riskier investments than investments in mortgages on single-family residential properties. The borrower's ability to meet the mortgage payments may be more difficult for investors to evaluate. For example, the ability to pay may depend on the use of the property and the success of the borrower's retail or commercial business. As well, syndicated mortgages may involve more complex legal structures and documentation. Investors have less direct control over the investment because they cannot act on their own to realize on the security of the investment.

There are no additional disclosure requirements imposed on mortgage brokers who are dealing in a mortgage syndication. The general provisions in the regulations for investor disclosure, described above, would apply.

Mortgages offered for sale by a person registered under the Mortgage Brokers Act are exempt from the registration and prospectus requirements under the Securities Act.

The government is interested in evaluating whether the current approach is adequate. One option would be to determine whether any additional disclosure requirements are desirable for investments in syndicated mortgages.

Alternatively, consideration could be given to removing the Securities Act exemptions for syndicated mortgages, either for all syndicated mortgages, or only those that exceed a threshold based on size of mortgage and number of investors.

  1. Should syndicated mortgages be subject to the registration and prospectus requirements of the Securities Act? Alternatively, what improvements to the registration and investor disclosure requirements in the Mortgage Brokers Act do you recommend for mortgage syndications?

Disclosure of Registration

Consumers need to know that the person they are dealing with is a registered mortgage broker or an employee or agent of a registered broker. Although FSCO lists the names of registered mortgage brokers on its website, this information may not be accessible to some consumers. As well, the current list does not include the names of employees and agents who are authorized to deal on behalf of a mortgage broker.

The government is considering requiring mandatory disclosure of the name, registration number and head office address on all written materials and advertising provided to the consumer by any person dealing in mortgages.

  1. Would it be beneficial if all persons who deal in mortgages were required to disclose the name, registration number and head office address of the mortgage broker on all of their solicitation materials?

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Errors and Omissions Insurance

Errors and omissions insurance is required for many professionals, including life insurance agents and real estate brokers. This type of insurance ensures that there are funds available to pay for consumer losses resulting from the actions - or inactions - of the provider with whom they have been dealing. Errors and omissions insurance can protect consumers from mistakes made in good faith by mortgage brokers and would cover a number of situations where consumers are at risk of suffering a loss. Insurance for fraudulent acts does not usually fall within this class of insurance, and is obtained through extended coverage.

In Ontario, mortgage brokers are not required to carry errors and omissions insurance or insurance for fraudulent acts, though some carry it voluntarily. For example, the Canadian Institute of Mortgage Brokers and Lenders and the Independent Mortgage Brokers Association of Ontario, two trade associations, have arranged to make errors and omissions insurance available to their members on a voluntary basis.

Some provinces, such as Alberta and Quebec, have made errors and omissions insurance a mandatory requirement for mortgage brokers. Alberta and Quebec also require their registrants to carry insurance to protect consumers and investors from dishonest acts on the part of mortgage brokers.

In Ontario, registered real estate sales persons and brokers must participate in RECO's insurance program. This program offers consumer deposit insurance - to a maximum of $500,000 - and also includes errors and omissions coverage. It does not include activities related to mortgage brokering.

The government is exploring both the benefits and the costs associated with mandatory insurance for anyone carrying on the business of mortgage brokering. This includes analyzing the amount of required coverage which would be provided by an insurer licensed in Ontario, with policy terms acceptable to the Superintendent.

  1. Mortgage brokers should be required to carry errors and omissions insurance and extended coverage for fraudulent acts, assuming availability. What is the appropriate minimum amount - $500,000,
    $1 million, or $2 million?

Practice Standards

Consumers need to be assured that they are being dealt with fairly by a mortgage broker and that they have all the necessary information to enable them to make an informed financial decision. For these reasons, it is proposed that practice standards be more clearly articulated in the legislation.

A mortgage broker should be responsible for fully informing the consumer (borrower or investor) of all relevant information before the consumer makes a financial decision. The consumer is entitled to disclosure of the risks and benefits of the financial product being considered and information about the mortgage broker's business relationships that is relevant to the transaction.

In addition, mortgage brokers should disclose the fact that actual results may differ significantly from any illustrations or examples that have been provided to a client, and should disclose important assumptions underlying such examples.

While there is a growing awareness by consumers about the role of mortgage brokers, many are still uncertain as to which party the broker represents. Some consumers believe that mortgage brokers work for lenders, while others think mortgage brokers work on behalf of borrowers. Indeed, mortgage brokers may be working for both parties at the same time. In the case of a mortgage loan, a consumer may be assuming incorrectly that the mortgage broker is working to get the consumer the best rate and terms in the marketplace.

To help consumers make informed financial decisions, it would be desirable to require mortgage brokers to disclose information about their business relationships with other parties involved in a transaction. This would include disclosure of any relationship between the mortgage broker and the firm whose product is being considered, as well as information about the remuneration provided to the mortgage broker. For example, for a mortgage loan, mortgage brokers would be required to disclose whether they are lender- affiliated brokers or whether they are unaffiliated and have shopped the market for the best rates and terms for the borrower. Consumers would benefit from knowing how many quotes the broker has obtained on a mortgage loan, and whether the mortgage loan being offered contains the lowest rate. It may also be desirable to set out conflict of interest rules in the legislation.

In the case of a mortgage investment, the mortgage broker should obtain or confirm information about the needs of the client. When making an investment recommendation, the mortgage broker should have a duty to reasonably ensure that the investment suitably fulfils those needs.

While many mortgage brokers undertake best practices in carrying on their business, the legislative framework could be amended to take a more proactive approach. The practice standards could be articulated in the legislation or regulations to include a prohibition on unfair and deceptive practices and anti-fraud measures.

  1. Do you agree that mortgage brokers should be required to comply with the practice standards described above?

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Location of Business

Registered mortgage brokers must operate from a permanent place of business open to the public during normal business hours, and provide an address for service in Ontario. They may only carry on business at a location authorized by their registration.

It is suggested the Mortgage Brokers Act prohibit a mortgage broker from having multiple offices unless each location is registered. Where there are multiple offices, one should be designated as the main office and the remainder as branch offices. Every branch office would be required to be under the direct management of a mortgage broker of record who has been registered for at least two years.

  1. Do you have any additional recommendations governing the location of business?

Books and Records

Every mortgage broker must file financial statements with the regulator on an annual basis. Not all financial statements need to be audited. If the broker does not have any mortgages under administration or does not hold any money in trust (except money held to pay property taxes), then the financial statements can be unaudited, but they must be subject to review by a public accountant. In the latter case, if the broker is the lender for all the mortgages the broker arranges or deals in and each of the mortgages has a principal amount of $1 million or more, then the financial statements need only be accompanied by a statement from an active officer or director confirming that the brokerage does not hold assets under administration or in trust.

In order to streamline requirements, consideration is being given to requiring audited financial statements only where the broker holds assets under administration or in trust. In all other cases, it is proposed that an officer or director would simply certify that the broker did not hold assets under administration. Any data required by the regulator, financial or otherwise, could be provided by the broker as part of the application for renewal of registration.

  1. Do you have any recommendations regarding books and records?

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The current Mortgage Brokers Act contains enforcement and remedy provisions that do not always provide the best methods for redressing contraventions of the Act.

It is important that the remedies available are varied enough that they can appropriately address the specific infraction. Some breaches are very serious and justify prosecution and even a revocation or suspension of registration. In some instances, it may be necessary to suspend registration pending a hearing on revocation. Administrative fines may address other infractions in an effective manner. Similarly, where a person has been convicted of an offence, the ability to require payment of compensation or restitution to the party that has suffered the loss can be a constructive remedy.

Other remedies that are currently missing in the Act include cease and desist orders, and updated powers not only for the Superintendent to freeze assets and trust funds, but to apply to a court to appoint someone to manage those assets and trust funds. In certain circumstances, such as when a business has been abandoned, the Superintendent should have the power to take possession and control of a broker's assets and trust funds. And where a person who, though not registered under the Act, is putting investors at risk, the power to inspect, investigate and preserve assets can be enhanced to help safeguard investment funds.

Such strengthened remedies would continue to be applied in a regulatory framework that provides appropriate procedural protections. The right to a hearing before the Financial Services Tribunal serves to ensure that a party has the right to have the facts reviewed before a final order is made that impacts on their ability to carry on business.

Improving enforcement powers and providing enhanced and appropriate remedies, while at the same time confirming procedural safeguards, will ensure that these provisions keep pace with reforms made to other financial services legislation.

  1. Do you have any suggestions on ways to improve enforcement powers and remedies?

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FSCO operates on a cost-recovery basis through fees relating to services it provides, as well as assessments from the regulated sectors. The revenues collected by FSCO (assessments and fees) are credited to the Consolidated Revenue Fund of the government which in turn funds the operating and capital expenditures FSCO incurs in its regulatory activities.

Currently, the mortgage broker sector is not subject to assessments by FSCO. Fees are primarily raised through registrations. In the past, full cost recovery has not materialized for the mortgage broker sector, with shortfalls as high as $600,000 to $700,000 per year. Much of this shortfall can be attributed to the extra costs of investigating and prosecuting unregistered mortgage broker activity.

While some of the measures outlined in this consultation paper will assist in dealing with the funding shortfall by strengthening the regulatory regime, further work on the funding model will be required. To this end, FSCO will be undertaking a study of the funding model with a goal to achieving full cost recovery from the mortgage broker sector on an equitable basis.

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The Ministry of Finance invites your comments on the issues outlined in this paper, and any additional comments related to the regulation of mortgage brokers in Ontario. Interested parties are asked to provide their written submissions by September 3, 2004.

You may send comments by mail, fax or e-mail to:

Improving the Mortgage Brokers Act
Mike Colle
Office of the Parliamentary Assistant to the Minister of Finance
c/o Industrial & Financial Policy Branch
Ministry of Finance
777 Bay Street, 10th Floor
Toronto ON M5G 2C8

Fax: (416) 327-0941


A copy of this consultation paper can be reviewed online at

Please note that all submissions received are subject to the access and privacy provisions of the Freedom of Information and Protection of Privacy Act. The information will be used to assist us in conducting and evaluating the results of the consultation, which may involve disclosing your comments to other participants, institutions and interested parties during and after the consultation. If for any reason you feel that your comments should not be shared with other parties, please indicate this in your covering letter. Personal information, such as an individual's name and contact details, will not be disclosed without consent.

If you have any questions about the collection, use or disclosure of this information, 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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© Queen's Printer for Ontario, 2004
ISBN 0-7794-6483-4

Ce document est disponible en franais sous le titre :
Améliorer la loi sur les courtiers en hypothèques document de consultation

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