On February 20, 2006, the Ontario government introduced Bill 65, the new Mortgage Brokerages, Mortgage Lenders and Mortgage Administrators Act, 2006 ("Bill 65" or the "New Act").1 Bill 65 marks the first major overhaul of the Mortgage Brokers Act (the "Current Act") in over 30 years. Bill 65 is the product of two consultation rounds and extensive industry input. Regulations for the New Act are also expected to be tabled for discussion in the coming months, prior to proclamation of the New Act.
Once passed, the New Act will confirm the exempt status of certain financial institution players offering mortgages, welcome foreign players considering entry into the Ontario mortgage industry, and change the licensing regime for mortgage lenders, administrators, brokers and agents, and real estate brokers.
(b) Exemptions under Bill 65 for Financial Institutions and Simple Referrals
In the New Act, there continues to be an exemption from the licensing requirements for financial institutions, their directors, officers and employees acting on behalf of their financial institution employers. The definition of financial institution. includes banks, authorized foreign banks, loan and trust corporations, insurers, credit unions and retail associations.
In addition, Bill 65 specifically exempts simple referrals of prospective borrowers (or lenders) to prospective lenders (or borrowers) from brokerage/broker/agent licensing requirements. To rely on this exemption, the referrer may provide only prescribed information, must disclose any entitlement to a fee or remuneration, and comply with other prescribed requirements. The specific activities constituting a simple referral are left to regulations.
(c) What activities in Ontario will be regulated?
In general, broadly speaking, Bill 65 will regulate the following activities undertaken in Ontario: dealing in mortgages, trading in mortgages, carrying on business as a mortgage lender, and carrying on business as a mortgage administrator (the "Regulated Activities"). Like the Current Act, the New Act would apply to "mortgages"; i.e. any charge on any property for securing money or money's worth.
(d) The new "brokerage" model of regulation
The New Act provides that only persons and entities with appropriate licences (listed below) may carry on the Regulated Activities, use titles reflecting those licences, or commence an action or proceeding to be remunerated for dealing or trading in mortgages or administering mortgages in Ontario.
Bill 65 provides for the regulation of entities and individuals who carry on Regulated Activities under a new "brokerage" model for the sector. There are 4 types of licences in this model that cover the various types of Regulated Activities described above: a brokerage licence (authorizing brokering, trading or lending); a mortgage broker's licence; a mortgage agent's licence; and a mortgage administrator's licence.
Under this model, a licensed brokerage must ensure that every broker and agent working on its behalf complies with the New Act. Brokers and agents will be restricted to acting on behalf of one brokerage. Agents may deal or trade in mortgages only under the supervision of a mortgage broker.
A brokerage will be required to appoint a principal broker to perform prescribed duties and to act as a compliance officer. In addition, the current Act foreign ownership of brokerages has been eliminated.
(e) Licensing changes affecting registered mortgage brokers, mortgage agents and real estate brokers
The details of the licensing standards and conditions were not included in Bill 65. However, the Ministry of Finance's 2005 Mortgage Brokerages, Mortgage Lenders and Mortgage Administrators Act: A Consultation Draft (the "2005 Consultation Draft") gives a good indication as to the direction of these licensing requirements.
Licensed real estate brokers registered under the Real Estate and Business Brokers Act (Ontario) (which is also undergoing reform) are no longer deemed to be licensed under the New Act. There are some proposed exemptions and transitional measures in the 2005 Consultation Draft that allow certain individuals to qualify as mortgage brokers. Eligible individuals would be sole proprietors, partners, active officers or directors associated with a mortgage broker registered under the Current Act, and listed agents of registered mortgage brokers who have completed certain educational programs. Based on the 2005 Consultation Draft, they will have a time-limited opportunity of one year after the coming into force of the regulations to apply to be licensed as a mortgage broker without having to complete additional education and experience requirements.
(f) A few other related changes: administrative penalties, cost of borrowing, and education overhaul
In addition to the ability to freeze assets or trust funds (as is currently the case), under Bill 65, the Superintendent will be authorized to issue compliance orders, make applications to court to appoint a receiver or trustee and impose administrative penalties for failure to comply with the New Act. These administrative penalties may range from C$10,000 for failure to comply by a mortgage broker or agent to C$25,000 for a mortgage brokerage, mortgage administrator or any other person or entity.
The Ministry of Finance has released draft cost of borrowing regulations under the Current Act. It is anticipated that these regulations will be approved and brought into force by the end of March, together with the related amendments to the Current Act. Upon being proclaimed in force, they will apply to the Current Act, and will also be carried forward in the New Act.
The 2005 Consultation Draft indicates that a full review of educational requirements for licensed mortgage brokers and agents is underway, and that delivery channels will be one focus of the review. It is anticipated that some transitional licensing courses may not necessarily meet future course requirements arising out of the review.
Please contact a member of our Financial Services Group if you would like more information about Bill 65:
1 Links to Bill 65 and related documentshttp://www.fin.gov.on.ca/english/consultations/mortgagebrokers/
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.