Canada: Bill 29 – A New Landscape For Mortgage Services In British Columbia
Banking and Finance Bulletin

The new Mortgage Services Act, which introduces new licensing requirements and enforcement powers, is expected to come into force later this year.

Since the Cullen Commission of Inquiry into Money Laundering in British Columbia (the "Commission") made a number of recommendations to combat money laundering in B.C., the B.C. government has prioritized the regulation of financial services, in order to keep up with changing national and international standards for the protection of consumers.

With the repeal of the Mortgage Brokers Act (the "MBA") and the introduction of the new Bill 29 – 2022: Mortgage Services Act (the "MSA"), expected to come into force later in 2024, the B.C. government has set the course towards increasing the regulation of financial services in B.C., in particular the area of mortgage services.

The Mortgage Brokers Act and the BC Financial Services Authority

Presently, the MBA governs mortgage brokers in B.C. The MBA was originally enacted in 1972 to regulate mortgage transactions, and despite several amendments since its enactment, it has not kept up with the changes and modernization of the financial services markets.

There has also generally been a move towards an integrated regulatory approach to financial services in B.C., particularly illustrated by the creation of the BC Financial Services Authority (the "BCFSA") in November 2019. The BCFSA assumed the responsibilities of the Financial Institutions Commission of British Columbia and is responsible for the supervision and regulation of the financial services sector, including credit unions, insurance companies, pensions, real estate professionals and mortgage brokers.

The New Mortgage Services Act

In line with the BCFSA's authority to supervise and regulate the financial services sector, the new MSA will allow the BCFSA to set licensing rules and licensee standards of conduct for mortgage service providers, which was one of the recommendations by the Commission. The MSA also introduces a new role, the Superintendent of Mortgage Services (the "superintendent"), which will be appointed by the BCFSA's board of directors. Under the MSA, the BCFSA will further have the power to enhance reporting and disclosure obligations, and the superintendent is empowered to exercise the regulatory duties of the BCFSA in the mortgage services industry.

The MSA also finds many similarities with other financial services legislation in B.C., such as the Real Estate Services Act, in particular in its licensing and penalties frameworks. Within these frameworks, the BCFSA will have increased investigation, disciplinary and licensing-related powers.

Once the MSA comes into force, the BCFSA will have rule-making powers over the mortgage services industry, and the earliest timeline for the introduction of the new BCFSA rules is estimated to be later in 2024.

Expansion of the Definition of Mortgage Services

The new MSA creates a new defined term for "mortgage services", which did not exist in the MBA. The MSA defines "mortgage services" to mean:

• dealing in mortgages;
• trading in mortgages;
• mortgage lending; or
• administering mortgages.

Each of the above types of mortgage services are further defined in the MSA, distinguishing between the regulation of mortgage lenders, mortgage brokerages and mortgage brokers.

New Licensing Requirements

The introduction of new licensing requirements under the new MSA is likely the greatest change, since under the MBA, only registration by mortgage brokers and submortgage brokers in the Mortgage Brokers Register (kept by the registrar) was required. In similar fashion, the MSA requires the maintenance of a register of licences by the superintendent.

The MSA requires those who provide mortgage services to be licensed, and establishes the following licensing levels:

• a mortgage brokerage licence;
• a principal broker licence;
• a mortgage broker licence; and
• a mortgage lender licence.

Under the MSA, unless permitted by the regulations, a person who is not an individual may only be licensed as a mortgage brokerage or a mortgage lender.

In addition, the MSA requires a mortgage brokerage to have a mortgage brokerage licence for each branch office it operates, a marked difference from the requirements of the MBA. These licensing requirements are further enhanced by the requirement in the MSA for every mortgage brokerage to have a principal broker. A principal broker is responsible for:

• the exercise of the rights conferred on the mortgage brokerage by its licence;
• the performance of the duties imposed on the mortgage brokerage by its licence; and
• the control and conduct of the mortgage brokerage's mortgage business, including supervision of the mortgage brokers who are licensed in relation to the mortgage brokerage.

Licensing Qualifications

Under the MSA, an applicant applying for the relevant licence or for renewal of a licence must satisfy the superintendent that they meet the following requirements:

• The applicant is of good reputation and suitable to hold the licence for which the applicant is applying.
• In the case of an applicant for a new licence who is an individual, the applicant is at least 19 years of age and meets the educational and experience requirements established by the rules. The rules will be established by the BCFSA and are further discussed below.
• In the case of an applicant for a licence renewal who is an individual, the applicant meets the educational requirements specified by the superintendent.
• In the case of an applicant who is not an individual, the following individuals, as applicable, are of good reputation: (a) if the applicant is a partnership or corporation, the applicant's partners or directors and officers; (b) if a partner of the applicant is a corporation, the corporation's directors and officers; and (c) if the applicant is not a partnership or corporation, the individuals who directly or indirectly control the applicant.
• In all cases, the applicant has not, for a reason that reveals the applicant as unfit to be a licensee, (a) been refused a licence under mortgage services, real estate, insurance or securities legislation in B.C. or another jurisdiction, (b) held a licence that was suspended or cancelled under mortgage services, real estate, insurance or securities legislation in B.C. or another jurisdiction, (c) been disciplined by a professional body, or (d) been convicted of an offence.
• In all cases, the applicant meets any other qualification requirements established by the rules. The rules will be established by the BCFSA and are further discussed below.

If an applicant makes a false or misleading statement in their application for a licence or a licence renewal, the superintendent may cancel or suspend such licence.

Licensing Exemptions

The MSA provides similar exemptions to licensing as the MBA did with its registration exemptions. The following persons are exempt from licensing requirements under the MSA:

• insurance companies;
• savings institutions;
• a director, officer or employee of an insurance company or savings institution, in respect of mortgage services provided on behalf of that insurance company or savings institution;
• any person acting for the government of Canada or the government of a province or for an agency of any of those governments, in respect of mortgage services provided on behalf of that government or agency;
• a lawyer in respect of mortgage services that are incidental to legal services provided by the lawyer;
• a person acting under the authority of a court;
• a trustee in bankruptcy, custodian, receiver, receiver manager or liquidator who is appointed under a federal or provincial enactment, in respect of mortgage services provided by the person in that capacity;
• an executor or administrator of an estate, in respect of mortgage services provided by the person to the estate in the person's capacity as executor or administrator; and
• a trustee, in respect of mortgage services provided under the terms of a will or marriage settlement.

Duties of Licensees

The MBA prohibited mortgage brokers or submortgage brokers from making any false, misleading or deceptive statements. Like the MBA, the MSA provides that such statements may result in the cancellation or suspension of an applicant's licence, but the MSA further imposes a duty of good faith and other recordkeeping duties on a licensee. In particular, the MSA requires a mortgage brokerage to maintain proper books, accounts and other records in accordance with the rules, and requires them to keep those records in B.C.

Discipline Penalties

The MSA allows a person to make written complaints against a licensee if such person believes that the licensee may have committed misconduct or conduct unbecoming of a licensee. The MSA further empowers the superintendent to conduct an investigation regarding such licensee's alleged misconduct or conduct unbecoming, which can proceed to discipline hearings and discipline orders. Discipline penalties can range from $250,000 to $500,000, a marked increase from the MBA, which provided for a maximum administrative penalty of $50,000. Appeals, in the same fashion as the MBA, go to the Financial Services Tribunal.

The BCFSA's Wide Regulatory Authority

Under the MSA, the BCFSA has been given the authority to make rules spanning a wide range of areas, including:

• licensing, such as the establishment of licence levels, different categories of licences, terms of licences, qualifications for obtaining or renewing a licence, and so on;
• the relationships between and among mortgage brokerages and their related licensees, including rules on the supervision of mortgage brokers by principal brokers and on related licensees of a mortgage brokerage;
• standards of conduct and business practice standards for licensees;
• establishing a code of ethics for licensees;
• establishing standard terms to be included in proposed contracts or forms prepared by licensees for consideration by a person to whom or on whose behalf a licensee is providing mortgage services;
• establishing a register of information based on data obtained from licensees about mortgage services and providing for the publication of all or part of the register;
• licensee requirements in relation to compliance with specified provisions of the Business Practices and Consumer Protection Act and the regulations (a greater expansion from the MBA);
• conferring additional powers and imposing additional duties on the superintendent;
• the designation of contraventions and penalty amounts; and
• any other matters provided in the regulations.

The BCFSA has also been given the power to make different rules in relation to different levels of licences, categories of licences, classes of mortgages and different circumstances as described in the rules. Before making, amending or repealing a rule, the BCFSA must engage in public consultation for the proposed rule(s), obtain the consent of the minister in accordance with the regulations, and comply with any other prescribed procedures and requirements.

The MSA provides that the regulations prevail over the rules in the event of a conflict between them.

Contraventions and Offences

The MSA provides a wide list of offences for contraventions of the MSA, including those related to licensing, deceptive dealing, interference with investigation, failure to comply with an order of the superintendent, the making of a false or misleading statement for a record that must be provided under the MSA, and the contravention of rules. Penalties for committing an offence range from $1.25 million to $2.5 million. This is a marked increase from the MBA, which provides that penalties for offences go up to a maximum of $200,000.

Collaboration With Other Jurisdictions

Another new element of the MSA that is not in the MBA is the power of the BCFSA and superintendent to each enter into an agreement with a regulatory authority of another jurisdiction inside or outside of Canada, respecting the administration and enforcement of the MSA or of comparable legislation of the other jurisdiction. Such an agreement may provide for the provision and exchange of information between the relevant jurisdictions.

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.