FSRA proposes new standards to raise mortgage broker professionalism

Ontario's financial watchdog aims to raise professionalism in the mortgage brokering sector with new proposed guidelines, the Financial Services Regulatory Authority of Ontario (FSRA) announced Monday.

The guidance outlines best practices for mortgage brokerages to ensure their principal brokers act with integrity, demonstrate professional competence, and have the necessary independence, authority, and resources to fulfill their regulatory responsibilities effectively.

“Through properly discharging their statutory duties, principal brokers, regardless of whether they operate as owners of the brokerage or as part of the brokerage’s control function, play an important role in preventing poor or unfair outcomes for consumers by establishing a strong conduct and compliance culture for their brokerage, brokers and agents,” the agency said in the draft guidance.

The proposed guidance comes after a 2020 FSRA survey found that only 50% of principal brokers at large brokerages with over 100 licensees had the authority to influence their firm's compliance culture.

Factors in assessing principal brokers

The FSRA evaluates several factors to determine if principal brokers and brokerages fulfill their statutory duties. These factors pertain to the principal broker's:

• Integrity: Acting ethically, honestly, and fairly, managing conflicts of interest appropriately.
• Professional competence: Qualifications, experience, knowledge of regulations, and effectiveness in overseeing agents and brokers.
• Independence: Ability to operate independently without undue influence, requiring sufficient decision-making authority within the brokerage and access to information and resources.

The guidance is aligned with international regulatory standards that suggest senior leadership should articulate a firm's ethical vision, assign compliance roles to suitable individuals based on integrity and competence, and provide those accountable with the necessary authority, resources, and independence.

Principal broker responsibilities

When a principal broker isn't an owner or senior executive, brokerages should:

• Facilitate communication between the principal broker and all levels of the brokerage.
• Grant the principal broker unrestricted access to brokerage records and information.
• Support the principal broker in conducting investigations into the conduct of the brokerage, brokers, and agents.
• Empower the principal broker to determine how to rectify misconduct or regulatory breaches.

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"We are providing this guidance to make sure principal brokers are empowered to make decisions and influence agent and broker behaviours that lead to the fair treatment of consumers looking to get, renew or invest in a mortgage," said Huston Loke, executive vice president of market conduct at FSRA. "Principal brokers play the crucial role of ensuring a mortgage brokerage operates effectively, ethically, and in compliance with all legal requirements."

FSRA is inviting public feedback on the proposed guidance during a consultation period that will run until June 28, 2024. The regulator will also host a live webinar and Q&A session on May 29 to explain the publication.

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