FSRA introduces new disclosure rules for syndicated mortgages

Ontario’s new financial sector regulator, the Financial Services Regulatory Authority of Ontario (FSRA), is proposing new disclosure requirements for syndicated mortgage investments (SMIs) designed to enhance investor protection by highlighting red flags.

The FSRA is proposing to enhance the disclosure that mortgage brokers are required to provide when dealing in SMIs that may be higher risk due to an inherent conflict of interest, high loan-to-value ratio, or the inclusion of a subordination clause.

“For the first time, we will require investors and FSRA to be made aware of whether syndicated mortgage investments bear the red flags associated with a high-risk transaction,” the FSRA said in a notice outlining the proposals.

“This will ensure that retail investors are more informed of the potential risks associated with the investment they are considering,” it said.

Additionally, firms will be required to report these sorts of higher risk instruments to the FSRA, which will enable the FSRA to “identify when high-risk transactions are being marketed to retail investors.”

At the same time, the FSRA is also introducing a new $200 fee for certain syndicated mortgages to offset the cost of the regulator’s enhanced oversight efforts.

For mortgages brokered between the launch of the FSRA on June 8 and Aug. 13, firms have until Aug. 23 to pay their fee. Starting on Aug. 13, however, the fee must be paid within five days of a transaction.

The FSRA said that it will also be contacting mortgage brokerages that have sold high-risk syndicated mortgages in the past to ensure they are providing the required disclosures and paying their regulatory fees.

“Where they are not, FSRA will take appropriate action,” it said.

While the FSRA is seeking to beef up investor protection in the SMI market, policymakers have also indicated that the regulation of high-risk syndicated mortgages is ultimately to be handed over to the Ontario Securities Commission (OSC).

To that end, the OSC is working with the rest of the Canadian Securities Administrators (CSA) to finalize proposed rule changes that would created a more harmonized regulatory framework for SMIs across the country. It’s also working with both the FSRA and Ontario’s Ministry of Finance to facilitate the oversight transfer, which is expected to take place by the end of 2019.

In the meantime, the changes being proposed by the FSRA are out for comment until Sept. 6.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.