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

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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

Source: newswire