How will the mortgage industry handle FINTRAC's new regulations?

New anti-money laundering (AML) and anti-terrorist financing laws come into effect today for mortgage brokerages across Canada, with potentially steep financial penalties in the cards for failing to comply with the requirements.

Introduced by FINTRAC (the Financial Transactions and Reports Analysis Centre of Canada), the changes will require administrators, brokers and lenders in the mortgage space to run a rigorous compliance program, report suspicious transactions, and meet other related expectations.

Principal brokers and broker-owners will be on the hook for brokerages that fall foul of the requirements – but there’s little in the new rules that’s unreasonable, according to a leading Ontario-based broker.

Frances Hinojosa (pictured top), CEO, co-founder and broker at Tribe Financial, told Canadian Mortgage Professional that brokerages should already have had a comprehensive compliance program in place, with the severity of potential FINTRAC penalties compared to prior FSRA (Financial Services Regulatory Authority of Ontario) fines marking the only aspect that might define the new regulations as a “game changer”.

The prospect of heavy penalties, she said, “puts a lot more weight on the shoulders of the broker-owner, or the compliance person at the firm, or the principal broker to ensure that they’re doing the proper due diligence.

“But anyone that has a background in this, it’s just another procedure that you should be following,” she added, “so you’re protecting the interests of your firm, your agent, your client and your lender. If you’re doing everything properly, it’s not that difficult to follow.”

Regulations shouldn’t be taken lightly, warns broker

Potentially heavy financial penalties mean the onus is on brokerages to pay much more attention to operations and oversight to make sure due diligence is being done in every file. Getting up to speed with the new regulations wasn’t necessarily a big challenge – but it required digging through a lot of information, according to Hinojosa, to ensure compliance programs are on a par with FINTRAC’s expectations.

Affordability issues continue to impact borrowers, but lenders urge mortgage brokers to keep communication clear and detailed. https://t.co/7V52GY9wjJ

— Canadian Mortgage Professional Magazine (@CMPmagazine) October 9, 2024

A warning, too, for broker-owners and principal brokers: simply lifting policy and procedure manuals from associations, Hinojosa said, won’t suffice. “I would say: Question yourself,” she said. “You’re not doing enough.

“You should be diving a bit deeper and having clearly defined protocols in place that are simple for your agents to follow so they know what’s required when they’re completing their compliance or dealing with a client so they know that they’re adhering to the requirements of FINTRAC and/or FSRA.”

The answer to the question of whether the industry will struggle to get up to pace with the new regulations from the get-go is one that will only become apparent in the weeks and months ahead. But Hinojosa underlined that not having a clearly defined policies and procedures manual in place and setting out firm expectations for agents is a recipe for failure.

Could the new rules change the mortgage industry for the better?

The changes have not received a universally warm reception from Canada’s mortgage broker community, although Hinojosa said they’ll likely represent a positive step in the long run.

Change might be naturally difficult in any walk of life, but the new rules simply reflect the greater regulatory oversight and expectations at play in other spaces, Hinojosa said. “These new requirements coming in are holding principal brokers and owners accountable to make sure that their people are also accountable to do their job properly,” she argued.

“And it’s only when we’re all held accountable that we’re going to be able to combat the things in the mortgage industry that are issues, such as money laundering and fraud. These are the ways to combat that. We have to make sure that we’re all doing our job properly.”

The mortgage and real estate industries have not been immune to legal difficulties in recent years, from mortgage scams to laundering money through property purchases, and Hinojosa expressed her hope that the changes would help thin out the number of bad actors across the space. “It’s no surprise that these things are coming into place,” she said.

“You hear all the issues over the last couple of years that are coming up and bubbling to the surface, and I always have a saying: It’s a few bad apples that ruin it for the bunch. There are great firms out there that are run by great broker-owners; unfortunately, when you have a few bad players, everyone else also has to level up their due diligence to make sure that they’re complying and doing their job properly, and checks and balances have to be in place.”

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