The Financial Services Regulatory Authority of Ontario (FSRA), the new regulator launched in June to replace the Financial Services Commission of Ontario and the Deposit Insurance Corp. of Ontario, is pledging to beef up oversight of “high risk” syndicated mortgage investments.
The regulator announced Tuesday that it is adopting a new supervisory approach for such investments, along with new retail investor disclosure requirements.
The FSRA proposed both sets of measures in August.
The FSRA said on Tuesday that its proposals were well received and that it will be adopting them, as it is “committed to strengthening” investor protection for high-risk syndicated mortgages.
The supervisory approach, which is set out in new guidance, applies to mortgage brokerages engaged in high-risk transactions. It sets out three risk factors that would deem transactions as risky, including high loan-to-value ratios, the subordination provisions and conflicts of interest.
The FSRA said its approach “facilitates real-time data collection, which enables us to identify when high-risk [investments] are being marketed to retail investors. FSRA can then take immediate action to investigate these transactions, which could lead to suspension or revocation of a mortgage brokerage’s licence and/or enforcement proceedings.”
Additionally, the regulator is mandating added disclosure for retail investors in risky syndicated mortgages that includes a risk warning, details the specific risks of high-leverage mortgage securities, discloses any conflicts and sets out the fees involved.
The FSRA says that the new disclosure requirements are intended to ensure that investors “will be better informed of the risk and able to make a more informed investment decision according their risk tolerance and investment sophistication.”
At the same time, the regulator said it will announce plans for reducing the regulatory burden on “lower risk” syndicated mortgage transactions.