An area of enforcement activity has been in the syndicated mortgage area, Syndicated mortgages continue to be a regulatory minefield for many issuers.
A case in point is the story of Hi-Rise Capital, a Toronto-based provider of syndicated mortgages. In May 2023, the mortgage syndicator was the subject of an enforcement action by the Financial Services Regulatory Authority of Ontario (FSRA), which resulted in the revocation of Hi-Rise’s mortgage brokerage license and mortgage administrator licence and the imposing of administrative penalties on the company and its mortgage broker /principal broker.
Hi-Rise acted as the mortgage brokerage and mortgage administrator for a number of syndicated mortgage investment projects (“Projects”). The principal broker with Hi-Rise was the owner of Hi-Rise as well as the borrowers/developers of the Projects.
FSRA found that as a mortgage brokerage, Hi-Rise did not:
- adequately document investors’ suitability assessments in a way that demonstrated that an adequate suitability assessment was completed, contrary to subsection 24(1) of Ontario Regulation 188/08;
- adequately identify project-specific risks to the investors contrary to sections 25 and 36 of Ontario Regulation 188/08;
- adequately maintain policies and procedures, contrary to sections 40(1), and 40(2) of Ontario Regulation 188/08;
- adequately disclose the relationships and conflicts of interest between Hi-Rise and other related entities contrary to sections 26, 27 and 33 of Ontario Regulation 188/08; and
- use the “as is” value of a project when calculating the loan-to-value ratios in disclosures made to two investors on one project contrary to Sections 31(1)1 and 33 of Ontario Regulation 188/08.
- In addition, Hi-Rise failed to adequately disclose fees contrary to sections 31(1) 1, 31(1)10, and 33 of Ontario Regulation 188/08.
FSRA also found that as a mortgage administrator, Hi-Rise did not:
- adequately disclose the nature of its relationship to the borrowers under the mortgages, contrary to sections 19, 20, and 21 of Ontario Regulation 189/08;
- adequately disclose the fees it was entitled to receive as administrator contrary to section 15(1) of Ontario Regulation 189/08;
- include mandatory information in the mortgage administration agreements contrary to sections 18(2)(5), 18(2)(6), and 18(3)(2) of Ontario Regulation 189/08; and
- ensure that its concurrent business activities did not jeopardize its integrity, independence, and competence as administrator, contrary to section 40 of Ontario Regulation 189/08.
You can read the full details of FSRA’s enforcement action here.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
