Ontario moves to toughen oversight of syndicated mortgage investments
The Ontario government will shift regulation of syndicated mortgage investment products to the Ontario Securities Commission in a move to toughen oversight of a rapidly growing industry that has faced investor complaints about its practices.
The province announced in its budget Thursday that it will transfer responsibility for the syndicated mortgage sector away from the Financial Services Commission of Ontario (FSCO), which is a provincial agency responsible for overseeing an array of financial services sectors from property insurers to pension plans.
The shift was recommended last year in a report from an expert panel that studied reforms to the FSCO. The panel said syndicated mortgages need to be regulated like other securities sold to the public, and said a watchdog like the OSC has more experience policing securities products.
The syndicated mortgage sector has exploded in Ontario in recent years as Toronto’s real estate market has boomed, with sales of syndicated mortgages in the province climbing more than 60 per cent in two years, to $6-billion in 2016.
Syndicated mortgages are investment products marketed by companies that finance real estate development projects using money provided by a pool of investors. The mortgages are typically provided to borrowers who cannot raise funds from conventional lenders, which means they pay a higher rate of interest for investors, but they have proved to be risky when borrowers are not financially stable.
Several mortgage firms have faced lawsuits in recent years from burned investors upset that development projects have not proceeded after companies faced financial difficulties.
As part of the reforms announced Thursday, the province said it will also impose caps on the amount individuals can invest in syndicated mortgage products. Details of the limits have not been determined, including whether they would apply per project or would be an annual total.
The province will also develop rules requiring people selling syndicated mortgage products to document their suitability for their clients and disclose more information about their risks.
Ontario said the shift of oversight to the OSC is consistent with the way syndicated mortgage products are regulated in other provinces, where oversight falls under the purview of securities regulators. There is no timeline yet for when the transfer will take effect.
“The government will work with regulators to plan an orderly transfer of the oversight of these products,” the budget document says.
Source: The Globe and Mail
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