Currently subject to the Real Estate Brokerage Act (REBA) and the regulations of the Organisme d'autoréglementation du courtage immobilier du Québec (OACIQ), mortgage brokerage will become a discipline covered by the Act respecting the distribution of financial products and services (ARDFPS) and subject to regulation by the Autorité des marchés financiers (AMF) as of May 1, 2020.
To ensure the transition, on June 13, 2018, the National Assembly of Quebec adopted the An Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions in order to amend the ARDFPS to include the supervision and control of mortgage brokerage.
Under the ARDFPS as it will read on May 1, 2020, a mortgage broker is a natural person who, for others and in return for remuneration that is contingent on the making of a loan secured by immovable hypothec, engages in a brokerage transaction relating to such a loan. To be recognized as such, the broker must hold a certificate issued by the AMF. However, the ARDFPS provides that certain persons who are not brokers benefit from an exception to the requirement to hold such a certificate when they engage in a mortgage brokerage transaction.
The AMF has chosen to apply the existing framework for the other sectors governed by the ARDFPS to mortgage brokerage activities. It has also proposed to add rules specific to this discipline to take into account its particular characteristics with the adoption of the following regulations:
Regulation to amend the Regulation respecting the issuance and renewal of representatives’ certificates;
Regulation respecting the compulsory professional development of mortgage brokers;
Regulation to amend the Regulation respecting the registration of firms, representatives and independent partnerships;
Regulation to amend the Regulation respecting the pursuit of activities as a representative;
Regulation to amend the Regulation respecting firms, independent representatives and independent partnerships;
Regulation to amend the Regulation respecting alternative distribution methods;
Regulation to amend the Regulation respecting the keeping and preservation of books and registers;
Regulation to amend the Regulation respecting fees and contributions payable; and
Regulation to amend the Regulation respecting information to be provided to consumers.
As part of this transfer of mortgage brokerage supervision, the AMF held a public consultation in the fall of 2019 to gather comments from the public and industry stakeholders on the draft regulations.
Those who had submitted comments were then invited to a presentation of the regulatory framework for mortgage brokerage on March 11, 2020, during which the AMF presented the changes made to the draft regulations based on the comments received.
Although few major changes were made to the draft regulations, some comments nonetheless led to adjustments in the regulations. The most important change is certainly the removal, from section 28.4 of the Regulation respecting firms, independent representatives and independent partnerships and section 9.13 of the Regulation respecting the pursuit of activities as a representative, of the 12-month period suggested by the AMF, during which a mortgage broker could not also act as a mortgage lender. This restriction would, among other things, have imposed serious constraints on the business model used by commercial and institutional lenders.
However, several questions remain unanswered and many points will need to be clarified in the coming months. First of all, the AMF has chosen not to define what a "mortgage brokerage transaction" is and has instead chosen to publish a list on its website. It remains to be seen whether the lack of a definition will create uncertainty as to the application of the new regime.
In addition, the AMF has chosen not to distinguish between residential and commercial mortgage brokerage in the draft regulations. To this effect, we had proposed distinguishing transactions relating to buildings with fewer than five dwellings. The lack of distinction poses several problems since, in practice, residential and commercial are two completely different realities. Since the AMF's primary concern is to foster consumer protection with this new regime, it seems pointless to hinder commercial and institutional lenders, whose activities are largely hampered by these new regulations.
Nevertheless, the AMF maintains that this is only the beginning of a comprehensive reform that will affect several other sectors under its responsibility. In particular, the AMF intends to continue its work on private lenders, other alternative lenders and syndicated loans, in particular during a forthcoming third consultation that should deal with amendments to Regulation 45-106 respecting Prospectus Exemptions and to Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations adopted under securities laws. It would seem these upcoming changes could clarify some of our questions regarding the supervision of mortgage brokerage.
Although the presentation explaining the changes to the draft regulations was circulated to those who had submitted comments, the final draft regulations were not made public. They are now in the hands of the Minister of Finance for his approval, with or without amendments. We will therefore have to wait until they are published in the Gazette officielle du Québec and the Bulletin of the Authority to know the final versions of the regulations that will be in force as of May 1, 2020.
For further information, please contact:
Pierre-Denis Leroux 514-982-412
Géraldine Côté-Hébert 514-982-5042
or any other member of our Commercial Real Estate group.
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