New Ontario Licensing Requirements

NEW ONTARIO LICENSING REQUIREMENTS:

WHAT YOU NEED TO KNOW

BY CHRIS FREIMOND

The proposed new licensing provisions for mortgage brokers in Ontario are good for the industry as a whole and an important first step in elevating the standards of the profession, says Sadiq Boodoo, principal broker, president and CEO of Approved Financial Services and a board member of CMBA-Ontario.

“Anything that requires more education and makes sure we are all able to better serve our clients and better protect investors is a good thing,” says Boodoo. “I think these changes will create at least a baseline standard for the industry and set a minimum level of knowledge requirements and experience for brokers so that we all operate from the same base of knowledge and experience.”

The new licensing provisions are part of the Ontario government’s proposed amendments to Ontario Regulation 409/07 under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA). If approved, the new licensing categories would take effect on April 1, 2023, starting with a 12-month transition period for brokers to meet the new licensing requirements.

THREE NEW LICENCE CLASSES HAVE BEEN PROPOSED

MORTGAGE AGENT LEVEL 1 LICENCE authorizes licensees to deal and trade in mortgages provided by:

• Financial institutions, as defined in section 1 of the MBLAA.

• Lenders approved by Canada Mortgage and Housing Corporation (CMHC) under the National Housing Act (NHA).

MORTGAGE AGENT LEVEL 2 LICENCE authorizes licensees to deal and trade in mortgages provided by:

• Financial institutions, as defined in section 1 of the MBLAA.

• Lenders approved by CMHC under the NHA.

• All other lenders, such as mortgage investment companies, syndicates, private individuals, agents, brokers and brokerages.

MORTGAGE BROKER LICENCE authorizes licensees to deal and trade in mortgages provided by:

• Financial institutions, as defined in section 1 of the MBLAA.

• Lenders approved by CMHC under the NHA.

• All other lenders, such as mortgage investment companies, syndicates, private individuals and brokerages.

MORTGAGE BROKERS CAN SUPERVISE MORTGAGE AGENTS (LEVELS 1 AND 2) AND CAN BE APPOINTED AS THE PRINCIPAL BROKER FOR A BROKERAGE.

The proposed new licensing requirements flow from a report to the Minister of Finance on the Legislative Review of the MBLAA that recommended the Ministry of Finance work with Financial Services Regulatory Authority of Ontario (FSRA), in consultation with the industry, to propose options for licensing schemes that better respond to the unique practices required by certain segments of the mortgage market.

Stakeholder feedback received during the MBLAA review process indicated that licensees working with private mortgage lenders and raising capital require a specific set of competencies, which should be reflected in the licensing and education requirements.

In response, the Government of Ontario proposed effective April 1, 2023:

• The establishment of a separate licence for mortgage agents who transact in private mortgages and arrange investments for private investors/mortgage lenders.

• Enhanced education and experience requirements for mortgage agents and brokers.

Boodoo, who was is a member of the technical advisory committee that provided feedback to the FSRA on the guidelines, says the proposed licence for mortgage agents includes enhanced requirements that address the need for agents (as well as brokers) to have additional education, knowledge and experience regarding private mortgages.

“Private mortgages may have terms and conditions that pose unfamiliar risks to consumers, given that they are not underwritten in the same way as those offered by more traditional financial institutions,” he says. “Mortgage agents and brokers must have the appropriate expertise to recommend products that meet consumers’ needs. They must take reasonable steps to properly understand, assess and inform consumers of any potential risks associated with private mortgages or mortgage investments.”

According to FRSA guidelines published to help brokers understand and interpret the new licensing requirements, the proposed changes support the following outcomes:

• Education/competency requirements that better align with activities in the mortgage market.

• Enhanced consumer protection as borrowers and lenders/investors receive appropriate levels of information and recommendations to make informed decisions relevant to their mortgages/mortgage investments.

• Enhanced confidence in the mortgage brokering industry as licensees are prepared for their career in the mortgage brokering sector.

Stakeholder comments on the FSRA guidelines received by the March 31 deadline included concern that some brokers who currently work with private mortgage lenders and arrange investments for private investors could be disadvantaged by the new licensing system if they do not yet have the education or experience to meet the requirements. It was suggested that the status of brokers who find themselves in this position be “grandfathered.” However, the FSRA indicated that this would not happen.

Instead, starting this fall, brokers who wish to transition to mortgage agent level 2 or mortgage broker licence status will be able to take the Private Mortgages Course and Challenge Exam and complete the requirements by April 1, 2023, when the new regulations take effect – but must meet the education requirements by March 31, 2024.

Boodoo says the challenge with grandfathering is the toss up between time and experience, which don't necessarily correlate.

“Someone who has been a broker for 10 or 15 years may have less experience brokering private mortgages than another broker who has been licensed for only two years but specializes in private lending, so it’s hard to see a correlation between time and experience,” he says.

Sadiq Boodoo, principal broker, president and CEO of Approved Financial Services and a board member of CMBA-Ontario

Boodoo says brokers who believe their experience and knowledge warrants grandfathering should have no problem passing a challenge exam or a course based on their knowledge and experience.

Some brokers, even with many years of experience, may not know what they don’t know, he adds, and taking the course could improve their knowledge and make them even better advisors to their clients.

“We may feel confident because of the number of deals and the type of deals we’ve done, but there could be elements of the lending space that we have never experienced or encountered and that could come up in the challenge exam,” says Boodoo.

His advice to principal brokers who may have concerns about their ability to pass the challenge exam is to take the course if they have the time because there is no harm in learning even more about mortgages and being in a better position to pass the exam.