The Financial Services Regulatory Authority (FSRA) of Ontario’s approach to syndicated mortgage investments started to take shape with the publication of two key documents early in August.
The first was the regulator’s Request for Comment – Proposed Supervision Approach for High-risk Syndicated Mortgage Investments (the Proposed Supervisory Approach), which singled out three indicators of potential harm to retail investors:
- High loan-to-value ratio;
- Inclusion of a subordination clause; and,
- Inherent conflict of interest among key participants.
The Proposed Supervisory Approach will require brokerages to provide retail investors with additional summary disclosure for syndicated mortgage transactions that have one or more of above indicators. The regulator believes that the additional disclosure will help ensure that retail investors are more informed of the potential risks associated with the potential investment. Brokerages will also be required to file the disclosure form with the FSRA.
Comments on the Proposed Supervisory Approach must be received by September 6, 2019.
The second was the announcement by the regulator, which deals with non-qualified syndicated mortgage investments. Effective June 8, 2019, subsection 6.3 of FSRA’s New Fee Rule (the New Fee Rule) requires that within five (5) days after providing the prescribed disclosure to the first potential or actual investor in a non-qualified syndicated mortgage, mortgage brokerages must:
- File with FSRA a completed and signed disclosure Form 3.2 – Disclosure Statement for Investor/Lender in a Non-qualified Syndicated Mortgage; and,
- Pay a $200 fee.
The regulator notes that there is a one-time grace period for non-qualified syndicated mortgages brokered between June 8, 2019 and August 13, 2019, where the filing requirements can be completed by August 23, 2019.
Request for Comment – Proposed Supervision Approach for High-risk Syndicated Mortgage Investments is available for download from the website of Financial Services Regulatory Authority of Ontario.
New Fee Rule related to non-qualified syndicated mortgages (subsection 6.3) is available for download from the website of Financial Services Regulatory Authority of Ontario.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
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