On March 28, 2023, the Financial Services Regulatory Authority of Ontario (FSRA) released updated draft interpretation guidance (the Draft Guidance) that addresses requirements and expectations for FSRA-licensed mortgage brokers, agents, brokerages and administrators to deter deceptive and fraudulent practices in the mortgage brokering sector. The Draft Guidance takes into consideration feedback received from the December 2021 public consultation and outlines FSRA’s interpretation of various provisions of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) and related regulations, and includes a non-exhaustive list of key steps for detecting and preventing mortgage fraud.

Fraud includes both situations where misleading or false information is provided to qualify a borrower for a mortgage, as well as when a person falsifies information to benefit financially from a mortgage transaction. FSRA expects brokerages and administrators to have policies and procedures that address the MBLAA prohibitions against providing false or deceptive information, the steps licensees must take to detect and prevent mortgage fraud and the duty to conduct identity verification.

The Draft Guidance notes that although FSRA does not regulate anti-money laundering (AML), conducting adequate identity verification is important for brokerages and administrators to defend against being used to facilitate money laundering. As we highlighted in our February bulletin, the federal Department of Finance has proposed amendments that once implemented will extend the application of the AML compliance regime to MBLAA licensees.

The Draft Guidance outlines FSRA’s expectation for licensees to take steps to ensure the accuracy of documents in a mortgage or investment transaction as well as the role of the principal broker in detecting and preventing mortgage fraud. The Draft Guidance also includes examples of red flags for fraud. The Draft Guidance notes that the failure to address or obtain the satisfactory resolution of red flags may be a reason to doubt the effectiveness of a licensee’s governance and the suitability to hold a licence under the MBLAA. We recommend that licensees review the Draft Guidance as it addresses practices that apply to your day-to-day business.

April 28, 2023