On October 8, 2020 the Financial Services Regulatory Authority (FSRA) published a summary of their activities to update the regulation of syndicated mortgages to assess risks and build frameworks and resources to deter ‘deceptive and fraudulent financial services practices and protect consumers’ including the following:

In June 2019, FSRA passed regulations which require requiring enhanced disclosure to investors in non-qualified syndicated mortgage investments (NQSMIs), and filing with FSRA of NQSMIs when retail sales commence. Using these filings, FSRA’s dedicated team is able to identify and deter unacceptable disclosures, ideally before investments are completed. This FSRA team actively reviews NQSMI materials and, when it identifies inadequate or misleading disclosures, contacts the mortgage brokers to confirm and mitigate those risks. 

In November 2019, FSRA implemented its Supervision Approach for High-risk Syndicated Mortgage Investments. This Approach focuses on the three hallmarks of high-risk NQSMIs (high loan-to-value ratio; subordination or postponement rights; conflicts of interest). Where any of these hallmarks exist, it requires a pre-contract, plain-language warning to retail investors.

In May 2020, FSRA published Interpretation Guidance which aims, in part, to address mortgage administration issues observed with Fortress. It details the obligations of mortgage administrators to make disclosures and otherwise protect the interests of NQSMI investors.

FSRA is working with the Ontario Securities Commission to transfer regulatory oversight of certain retail NQSMI transactions from FSRA to the OSC. The transfer is expected to come into effect on March 1, 2021. FSRA recently completed a public consultation on its proposed approach for supervising mortgage brokerages and administrators that are engaged in SMIs, and for SMI transactions that remain under FSRA’s supervision after the transfer.  See: https://www.fsrao.ca/media/2046/download.

For a copy of the update: https://www.fsrao.ca/newsroom/fsra-update-syndicated-mortgages

For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.

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