Ontario’s latest moves on syndicated mortgages

In its 2018 budget, the Ontario government outlined the steps it has taken to protect investors against the risks of syndicated mortgage investments (SMIs).

These investments, which are private debt agreements for real estate projects that often promise attractive annual returns, will now be subject to a $60,000 investment limit on individual investors. The government amended regulations under the Mortgage Brokerages, Lenders and Administrators Act, 2006, as planned in last year’s budget.

The 2018 budget says those amendments will also “ensure that potential investors are aware of the risks regarding SMIs.” The government says it’s aiming to “prevent investors from becoming overly concentrated in these investments,” and that its regulatory amendments will come into effect as of July 1, 2018.

As reported by Advisor.ca in May 2017, some SMIs can come with risky backing or excessive commissions. As a result, investors need to assess a project’s prospects and quality of underwriting.

Read: Protect clients from risky syndicated mortgages

The Ontario budget also mentions that the OSC will take over regulatory oversight of SIMs, in place of the Financial Services Commission of Ontario. The government’s measures are meant to provide “interim” support as that transfer is made.

On March 8, CSA released proposed amendments related to syndicated mortgages for a 90-day comment period ending June 6. To streamline how SIMs are regulated across Canada, and consistent with the government’s changes, the national regulator wants to “remove the mortgage exemptions for syndicated mortgages in Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island and Yukon.”

Read: CSA proposes national framework for syndicated mortgages

The exemptions don’t exist in Alberta, British Columbia, Manitoba, New Brunswick, Quebec and Saskatchewan.

Among other changes, CSA would also require alternative prospectus exemptions for the distribution of SIMs. As a result, CSA said in its March 8 release, “[…] We expect that syndicated mortgages will most likely be offered primarily under the accredited investor exemption under section 2.3 of NI 45-106 (the AI exemption), the OM exemption, or the family, friends and business associates exemption under section 2.5 of NI 45-106.” The OM exemption, it adds, allows for the sale of securities to retail investors if there’s “adequate disclosure” to purchasers.

CSA’s goal is to help investors make “more informed investment decisions” as well as “enable registrants involved in the distribution to better fulfill their obligations.”

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