Rule changes come into effect on October 11
Big changes in mortgage broker regulation are looming, with new requirements aimed at preventing money laundering and terrorist financing coming into effect on October 11.
Brokerages will face a host of new obligations from that date, including the implementation of a compliance program, requirement to report certain types of transactions, and more rigorous identification of clients and adherence to Know Your Client (KYC) rules.
Potentially significant financial penalties could arise for those who fall foul of the new rules – with broker-owners and principal brokers on the hook if their agents fail to comply.
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) will oversee the new compliance structure.
That regulatory framework is likely to have a sizable impact on how brokerages conduct business, according to Geoff Willis (pictured top), president and chief executive officer of Newton Connectivity Systems.
Is uniformity set to become more commonplace in mortgage tech?
Willis, whose company owns and develops the widely-used Velocity content management system, told Canadian Mortgage Professional brokers and brokerages who aren’t prepared for the changes could see significant headaches as a result. “I think broker-owners are going to try to create new processes,” he said.
“I think it’s going to create a lot of frustration for agents who aren’t being proactive and understanding… the change of their interactions with clients. They’ll have to react to it.”
Brokerages that have a clear system in place for the new changes will cope – but Willis raised the view that broker-owners may increasingly have each of their agents using the same CRM, rather than allowing individual agents to choose whichever they prefer.
Having agents using different platforms, according to Willis, “is going to be a nightmare” for brokers to oversee – “unless they create their own separate processes for everybody, which is in and of itself very manual and onerous,” he said.
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— Canadian Mortgage Professional Magazine (@CMPmagazine) September 20, 2024
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“So I think most owners are coming to terms with the idea that they have to pick a horse and say, ‘OK, we’re going to do it this way in our office,’ and not allow the agents to kind of just do what they feel like. I think uniformity is going to become a more important thing because of this new regulatory framework.”
Identifying PEPs a centrepiece of new regulations
The rules require brokers to identify instances where they’re dealing with a political exposed domestic or foreign person in a mortgage transaction, and act on that information as soon as it’s learned.
That action entails taking reasonable measures to establish the source of that person’s funds and wealth and file a suspicious transaction report if inconsistent information is received or the agent or broker has reasonable grounds to suspect that the transaction is being conducted with the intention of money laundering or terrorist financing.
While those requirements could add plenty to the work of brokers, Willis highlighted that the list of potential politically exposed persons (PEPs) is relatively small – and said Newton has already taken steps to verify with the applicant whether they might be one early in the process, rather than requiring the agent or broker to continually monitor the possibility.
Requiring a client to self-declare whether they’re a PEP is viewed as an acceptable form of monitoring by FINTRAC, and Willis also emphasized steps being taken to ensure brokerage owners have adequate oversight of their company and whether their agents are compliant with the slate of new rules.
A step Newton has taken which could become commonplace, he said, is a tool featuring a borrower risk rating – a questionnaire inside a deal – that rolls up to the broker-owner so they get a sense of which agents are doing it and which aren’t. “[The owner] even has the ability to decide whether or not they want to make sure that it gets done before a new deal can even be submitted to the lender,” he said.
“So we’re trying to incorporate the needs of the broker-owner into the whole hierarchy. Ultimately, they’re going to be the ones that FINTRAC are going to call. They’re not going to call an individual agent – they’re going to call the ownership and say, ‘Hey, what do you guys do in your park?’ So for them to have some resources to turn to is going to be important.”
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