Ministry of Finance

McGuinty Government Strengthening Consumer Protection And Supporting Economic Growth

Province Introduces New Mortgage Brokers Law

    TORONTO, Feb. 20 — Finance Minister Dwight Duncan introduced
legislation to replace the current Mortgage Brokers Act to improve consumer
protection, enhance and modernize financial regulation and encourage greater
competition and choice for consumers.
    "The new Mortgage Brokerages, Lenders and Administrators Act is an
important part of our government's plan to improve Ontario's economic
advantage," Duncan said. "Not only will this act benefit consumers, but it
will support a new generation of economic growth through modernized financial
services regulation."
    Ontario's current Mortgage Brokers Act dates from the early 1970's. Since
then, many new mortgage products and services have appeared on the market.
Obtaining financing to purchase a home is one of the biggest financial
decisions a person will make, and more than one in four homebuyers now rely on
mortgage brokers for help with their borrowing needs.
    The new legislation would require individuals and businesses who deal in
mortgages to be licensed by the Financial Services Commission of Ontario
(FSCO). In addition, brokerages would be required to have a Principal Broker
who will oversee conduct and act as the chief compliance officer for the
organization. Other provisions in the legislation would modernize FSCO's
enforcement powers, remove restrictions for foreign ownership, and establish a
separate license for those who administer mortgages, which involves handling
investor funds.
    "We need updated rules and modernized practices for our increasingly
sophisticated financial services marketplace," Duncan added. "With the role of
mortgage brokers expanding, now is the right time to modernize Ontario's
regulatory framework to encourage competition and provide more choice for
homebuyers."

    Disponible en français

                For more information visit www.fin.gov.on.ca


    Backgrounder
    -------------------------------------------------------------------------

      HIGHLIGHTS OF THE MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS
                                  ACT, 2006

    The proposed Mortgage Brokerages, Lenders and Administrators Act, 2006,
would establish a comprehensive and streamlined system of rules governing
mortgage brokers and agents.

    Regulated activities

    The activities that would be regulated under the proposed Mortgage
Brokerages, Lenders and Administrators Act, 2006 include: dealing in
mortgages, trading in mortgages, carrying on the business of lending money on
the security of real property, and carrying on the business of administering
mortgages in Ontario.
    The new act provides a clear description of the activities subject to
regulation.
    The Superintendent of Financial Services would be authorized to issue
four types of licences:
 — Brokerage licence
 — Mortgage broker's licence
 — Mortgage agent's licence,
 — Mortgage administrator's licence.

    The proposed act would restrict the use of the titles "mortgage
brokerage," "mortgage broker," "mortgage agent" and "mortgage administrator"
and their French equivalents to persons and entities licensed as such under
the act.
    Corporations, partnerships, sole proprietorships and prescribed entities
that carry on the business of dealing in mortgages, trading in mortgages or
lending money on the security of real property would be required to have a
brokerage licence. Corporations, partnerships, sole proprietorships and
prescribed entities that carry on the business of administering mortgages in
Ontario would be required to have a mortgage administrator's licence.
    Individuals who are remunerated for dealing in mortgages or trading in
mortgages in Ontario, as employees or otherwise, would be required to be
licensed as a mortgage broker or mortgage agent.
    All licensees would be required to comply with standards of practice to
be prescribed by regulation.
    The Superintendent would have the authority to:
 — Issue or refuse to issue a licence
 — Impose or amend licence conditions
 — Renew or refuse to renew a licence
 — Suspend or revoke a licence
 — Allow or refuse to allow the surrender of a licence,
 — Impose conditions on the surrender of a licence.

    Exemptions from regulation

    Under the proposed act, financial institutions would be exempt from
having to be licensed because they are already highly regulated and have
substantial consumer protection measures in place. The employees of financial
institutions are also exempt from being licensed as mortgage brokers or
agents, so long as they are acting on behalf of their employers.
    Individuals and businesses providing simple referrals would also be
exempted from the requirement to be licensed. A simple referral is where a
person or entity refers a prospective borrower to a prospective lender, or
refers a prospective lender to a prospective borrower. Regulations would set
out the information that may be shared and the obligation to disclose referral
fees in the course of making simple referrals.
    Lawyers would also be exempted from requirements to be licensed in
circumstances as prescribed in regulations. These regulations and others will
be consulted upon.
    The act would enable, through regulations, other exemptions from the
requirement to be licensed.

    New brokerage model

    The proposed act would create a brokerage model for the sector. Under
this model, a licensed brokerage would ensure that every broker and agent
working on its behalf complies with the act. Brokers and agents would be
restricted to acting on behalf of one brokerage. Agents would only deal or
trade in mortgages under the supervision of a mortgage broker. A brokerage
would be required to appoint a principal broker to perform prescribed duties.
The principal broker would act as a compliance officer.
    The current act imposes foreign ownership restrictions on mortgage
brokers. The proposed act would not include these restrictions for mortgage
brokerages.

    Enforcement provisions

    The proposed act would increase the enforcement tools available to the
Superintendent, which in turn would allow regulatory measures to be more
proportionate to the contravention. The Superintendent would be authorized to
issue compliance orders, and would have the power to issue an order to freeze
assets or trust funds and to apply to court for the appointment of a receiver
or trustee.
    The proposed act would also enable the Superintendent to impose
administrative penalties for contraventions of, or failures to comply with,
the proposed act in amounts determined in accordance with the regulations.
    An administrative penalty imposed for a contravention could not exceed
$25,000 in the case of a contravention or failure to comply by a brokerage or
mortgage administrator, or $10,000 in the case of a mortgage broker or agent.
    Upon conviction for an offence under the proposed act, the penalty for an
individual would be a fine of not more than $100,000 or imprisonment for up to
one year, or both. The maximum penalty for a corporation would be a fine of
$200,000.

    Background

    In the 2004 Ontario Budget, the government committed to review the
Mortgage Brokers Act with a view to introduce a bill to replace the act. A
consultation paper titled Improving the Mortgage Brokers Act was released in
June 2004. Subsequently, a consultation draft of the proposed act was released
for public comment in March 2005. The Ministry of Finance hosted a technical
briefing of stakeholders and then-Parliamentary Assistant Mike Colle chaired a
roundtable. The Ministry of Finance received some 50 written submissions on
the consultation draft. The proposed Mortgage Brokerages, Lenders and
Administrators Act, 2006 was developed out of this extensive public
consultation.

    Contact:
    Manuel Alas-Sevillano
    Ministry of Finance
    416-212-2155

    Disponible en français
                              www.fin.gov.on.ca

For further information: Sean Hamilton, Minister's Office,
(416) 325-8679; Manuel Alas-Sevillano, Ministry of Finance, (416) 212-2155