Mortgage Service Act (MSA) – Regulatory Standards of Conduct

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• Ontario’s HPA: What the New NOSI Rules Mean for Mortgage Brokers and Lenders

  March 31, 2026

  Ontario’s Homeowner Protection Act (HPA) took effect on June 6, 2024. It changes how certain notices can appear on a home’s title and removes a common source of last-minute surprises in mortgage deals. If you arrange mortgages or fund them, this matters because these notices used to slow down closings, create borrower stress, and sometimes push homeowners into paying fees they didn’t truly need to pay just to keep a transaction alive. The big change Before June 6, 2024, some companies that rented or financed home equipment—like water heaters, furnaces, and A/C units—would register a notice on the homeowner’s property title. That notice is called a Notice of Security Interest (NOSI). Now, under the HPA, these notices can’t be registered on title for consumer household equipment. In other words: equipment providers can’t use the land title system to pressure homeowners over ordinary household items. Why NOSIs caused problems in mortgage transactions Most homeowners didn’t even know a NOSI existed until they tried to sell or refinance. A NOSI isn’t the same thing as a mortgage, but in practice it often created the same type of panic: title searches would reveal the notice late in the process lenders wanted comfort that the title was “clean” lawyers had to figure out what the notice meant and how to remove it borrowers felt forced to pay large “buyout” amounts immediately Even when the company couldn’t take the home, the timing pressure was real. In a refinance, that pressure can be even worse because borrowers may be counting on funds to consolidate debt or meet urgent expenses. What changed for older NOSIs already on title The HPA doesn’t only apply going forward. It also helps deal with NOSIs that were registered before June 6, 2024 for household consumer items. The practical takeaway is: some older NOSIs that should never have been on title in the first place are now treated as ineffective, and there are processes to have those notices removed without the homeowner having to negotiate with the company that registered them. Your borrower’s real estate lawyer is the right person to confirm whether a NOSI is disqualified and to handle the removal steps through the Land Registry process. What this means for mortgage agents and brokers This change reduces one kind of closing problem—but it creates a new risk: people may assume that if the notice is gone (or removable), the debt is gone too. That’s not always true. So your best practice is to focus on two separate issues: Title issue: Is there a notice on title that affects closing? (Often easier now for household items.) Contract issue: Does the borrower still owe money under a rental/lease/financing contract? (Still possible.) Practical steps you can build into your process Ask early if the property has rented/financed equipment (water heater, HVAC, water treatment). Get the paperwork early: contract, account statements, buyout terms. If the borrower is being pressured with “you can’t close unless you pay,” encourage them to speak with their lawyer to confirm what’s actually required. Keep clear notes in the file—especially if a borrower is deciding whether to pay, dispute, or remove a notice. What this means for lenders and underwriters Lenders should see fewer last-minute title surprises caused by household equipment NOSIs. But lenders and lawyers are still cautious for a reason: No notice on title doesn’t guarantee there’s no equipment debt. This is why some transactions now involve: more detailed questions about rental items requests for proof of ownership or buyout confirmation PPSA searches (searches for security interests registered against the person/company name, not the land) This can feel like “more paperwork,” but it’s often about preventing a borrower from inheriting a messy equipment dispute after closing. A common misconception to avoid: “If it’s not on title, it doesn’t matter.” This is the biggest trap. Even if equipment companies can’t use NOSIs on title anymore for consumer goods, borrowers can still face: collections activity under the contract credit reporting disputes claims about returning equipment or paying a buyout conflicts after a purchase when a buyer didn’t realize an item was rented So while the HPA reduces title leverage, it doesn’t eliminate the need for good disclosure and good diligence. What you can tell clients Here’s a simple way to explain it to a borrower: “This new law makes it harder for equipment companies to put notices on your home’s title for things like water heaters.” “But if you signed a contract, you may still owe money under that contract.” “Your lawyer can confirm whether anything on title is removable and what we actually need to do to close.” That messaging helps clients stay calm while still taking the issue seriously. Quick checklist for mortgage files Use this as a practical closing tool: Confirm if any household equipment is rented/financed. Collect contracts and buyout/ownership terms. Flag any equipment disputes early (before commitment / funding). If a NOSI is found or claimed, send it to borrower’s counsel to confirm whether it’s disqualified and removable. Don’t assume “pay it off” is the only solution—especially if the notice is no longer effective. Bottom line The HPA is a positive change for Ontario mortgage transactions. It should reduce last-minute title issues tied to water heaters, HVAC rentals, and similar household equipment. But mortgage professionals still need to manage the underlying contract risk by asking the right questions early and making sure borrowers get proper legal advice when a notice or demand letter appears. Disclaimer: This article is for general information only and is not legal advice. Legal advice depends on the facts of your situation. If you have questions about a NOSI, a title issue, or an equipment contract, speak to an Ontario lawyer.

• Strong Borders Act AML reforms — what mortgage lenders and brokers in Canada need to know

  March 31, 2026

  Canada’s anti-money laundering (AML) rules just got sharper teeth—and mortgage lenders and brokers are squarely in the spotlight. Over the past two years, the federal government has moved from signalling major AML reform to enacting it. In 2024, the government previewed a significant strengthening of Canada’s AML framework. That preview became a concrete legislative proposal on June 3, 2025, when Parliament introduced the Strong Borders Act (Bill C‑2). Many of those measures are now law under Bill C‑12, which received Royal Assent on March 26, 2026 on an expedited timeline. For businesses regulated under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and supervised by FINTRAC, the impact is straightforward: higher expectations, higher enforcement risk, and dramatically higher penalties. For mortgage lenders and brokers, that means AML compliance needs to be operationally embedded across the origination and funding process—not treated as a back-office formality. The “then”: what Bill C‑2 signalled (June 10, 2025 context) When Bill C‑2 was introduced in June 2025, it was positioned as a watershed moment for Canada’s AML regime. The proposed PCMLTFA amendments and regulatory changes were expected to shift the compliance landscape in two major ways: Universal FINTRAC enrolment for reporting entities, paired with significantly higher penalties for AML non-compliance; and A proposed prohibition on receiving cash payments of C$10,000 or more for business purposes (and, for charities, as a donation), subject to exemptions in regulations. Bill C‑2 also proposed broader reforms to strengthen Canada’s ability to investigate and prevent money laundering, including measures that would expand information access and sharing in certain contexts. Importantly for the mortgage sector, Bill C‑2 explicitly identified mortgage administrators, mortgage brokers and mortgage lenders as part of the population that would be impacted by FINTRAC enrolment requirements—underscoring the government’s view that mortgage-related activity is a key AML risk channel. The “now”: Bill C‑12 is law (Royal Assent March 26, 2026) Bill C‑12 has now enacted significant amendments to Canada’s AML regime. Some key elements are already in effect, and others (including universal FINTRAC enrolment) are enacted but not yet in force. Either way, the practical direction of travel is clear: FINTRAC is being given more tools, and reporting entities are being held to a higher standard of day-to-day compliance. Below are the changes most likely to affect mortgage lenders and brokers. 1) Penalties are dramatically higher—and can compound quickly The headline change that gets boardrooms and principals’ attention is the revised administrative monetary penalty (AMP) framework. Bill C‑12 increases maximum AMPs by roughly 40 times the previous levels. Per violation, the maximums are now: Minor: up to $40,000 Serious: up to $4 million Very serious: up to $20 million In the mortgage context, this matters because AML issues often arise at the file level—and regulators don’t necessarily view problems as a single “event.” A recurring gap across multiple borrowers or transactions (for example, inconsistent identity verification, missing beneficial ownership documentation, or poor third-party determination records) can create multiple violations, increasing exposure. There is also a significant corporate-structure angle: in some cases, penalty caps may be assessed by reference to global income (for individuals) or global corporate group revenue (for entities). For mortgage businesses that are part of larger groups—particularly those with affiliates outside Canada—this can materially increase theoretical downside. 2) FINTRAC can require formal remediation—on a clock Bill C‑12 introduces a mandatory compliance agreement regime tied to prescribed violations. In practice, that means if FINTRAC penalizes a reporting entity for a prescribed violation, FINTRAC will require the business to enter into a compliance agreement setting out what must be fixed and by when. If the entity refuses to enter the agreement, or fails to meet its terms, FINTRAC must issue and publicize a compliance order. This has two major implications for mortgage lenders and brokers: Remediation becomes formal, time-bound, and enforceable, rather than a best-efforts exercise after an examination. Public compliance orders raise reputational and commercial risk, particularly for brokers whose business depends on referral sources and lender relationships, and for lenders reliant on funding partners and investor confidence. A breach of a compliance order is itself treated as a new violation, creating additional penalty exposure. 3) AML programs must be “effective,” not just documented Historically, many AML programs were built around formal requirements: policies and procedures, training, and a scheduled effectiveness review. Those pieces still matter, but Bill C‑12 raises the statutory standard. The PCMLTFA now requires an AML compliance program to be “reasonably designed, risk-based and effective.” In other words, FINTRAC is positioned to assess not only whether you have a program, but whether it actually works in practice. For mortgage lenders and brokers, “effective” tends to mean FINTRAC will expect evidence of consistent execution in the real origination process, including: reliable identity verification and recordkeeping practices, appropriate handling of beneficial ownership and corporate borrowers, clear third-party determination and documentation, escalation and decision-making processes for suspicious activity (with a defensible audit trail), and testing or quality assurance that finds issues and drives correction. This is also where many organizations get caught: strong policies, uneven execution—especially across multiple branches, agents, or broker networks. 4) Anonymous or obviously fictitious clients are expressly prohibited Bill C‑12 explicitly prohibits providing services to anonymous clients or clients using clearly fictitious names. For most mortgage professionals, this will sound like “common sense,” but it matters because it tightens the compliance narrative. Practices like “we’ll finalize ID later” or “we relied on someone else’s ID check” become harder to defend when the statute is explicit. The takeaway is less about edge cases and more about file discipline: if the identity verification isn’t done, documented, and retrievable, the file is a liability. 5) FINTRAC’s examination reach is broader Bill C‑12 also expands FINTRAC’s ability to examine records and inquire into the business and affairs not only of known reporting entities, but also of those it reasonably believes are reporting entities. This matters most for non-traditional models and evolving structures—for example, certain private lending arrangements, syndicated models, or platforms that mix brokering, Read more

• Ontario HST New Home Rebate (Proposed) — What Lenders and Brokers Need to Know (as of March 25, 2026)

  March 30, 2026

    In a move aimed at improving housing affordability, the Ontario government announced on March 25, 2026 a proposed enhanced HST rebate on eligible new homes. If implemented, this program can materially reduce a borrower’s cash-to-close and/or overall financing requirement—particularly on homes up to $1 million—making it a key planning item for pre-approvals, builder deals, and closing instructions. Rebate structure (impact on purchase price economics) Home price range HST reduction amount (proposed) Up to $1,000,000 Full 13% HST rebate (up to $130,000) $1,000,001–$1,500,000 Flat $130,000 reduction $1,500,001–$1,850,000 Declining reduction from $130,000 down to $24,000 Over $1,850,000 $24,000 (status quo provincial reduction) Broker/lender lens: why this matters For eligible transactions, the rebate may reduce the client’s required equity/down payment and closing funds, and may improve affordability metrics. You should expect more clients trying to time signing dates and closing/construction milestones to fit the eligibility window. Builder pricing/APS terms may start referencing the enhanced rebate—important for reviewing how the tax is treated in the contract (included vs. added, assignment of rebate, and who receives the rebate at closing). Federal legislation risk (timing and certainty) Because the rebate requires amendments to the federal Excise Tax Act, the announcement is unusual in that it was made by Ontario without a concurrent federal release. Ontario has indicated the federal government has agreed to “approximately” cover the 5% federal portion of the HST, but the changes remain subject to federal legislative approval. Broker/lender takeaway: treat as “proposed” until enacted Avoid underwriting or advising clients on the assumption the full rebate will apply unless/ until confirmed in binding legislation and reflected in closing statements. Consider adding a borrower acknowledgement in your file notes (or internal condition) that rebates are subject to legislative change and CRA eligibility. Eligibility — “qualifying new home” categories (what to screen early) Owner-occupied (primary residence) new home Eligible where the home is acquired for use as the buyer’s primary place of residence and the purchase agreement with the builder is signed between: April 1, 2026 and March 31, 2027 Purpose-built rental / new rental supply (construction started early) Eligible where construction began before March 31, 2026 and the home is intended for use as a residential rental property, and: the purchase agreement with the builder is signed between April 1, 2026 and March 31, 2027, and construction is substantially completed on or before December 31, 2029 Broker/lender practice point Capture (i) APS signing date, (ii) intended occupancy (owner-occupied vs rental), (iii) construction start evidence (where relevant), and (iv) anticipated substantial completion date for new builds. These drive eligibility and can affect the borrower’s liquidity plan. First-time home buyer rebate alignment (stacking potential) Ontario has also previously announced a separate provincial HST rebate for first-time home buyers, expected to align with the federal First Time Home Buyers’ rebate effective March 20, 2025. If a first-time buyer signs an APS with a builder for a new home between March 20, 2025 and December 31, 2030, both provincial and federal rebates may be available. Broker/lender takeaway First-time buyers may have multiple rebate pathways depending on timing and transaction type; ensure clients are directed to confirm eligibility with their lawyer/accountant and that your funding plan is resilient if a rebate is reduced or delayed. Operational considerations for mortgage funding and closings Closing adjustments: New home rebates are often handled through statement-of-adjustments mechanics; confirm whether the builder credits the rebate on closing or the buyer applies post-closing. This changes cash-to-close. Qualification and LTV: If the rebate is treated as a reduction to total cost rather than cash back, it can shift the effective financing need. Ensure consistency between underwriting assumptions and the lawyer’s closing adjustments. Builder contract review: Watch for clauses assigning the rebate to the builder, conditions precedent, or buyer indemnities if CRA later denies the rebate. Bottom line (what to tell clients) The key planning date for the main enhanced rebate is that the APS must be signed between April 1, 2026 and March 31, 2027 (with additional construction timing rules for certain rental-focused transactions). Both the provincial and federal components remain subject to federal Excise Tax Act amendments. Clients should confirm eligibility and closing mechanics with their real estate lawyer and tax advisor before relying on the rebate for affordability or down payment planning.

• Big White “Seller Impersonation” Fraud: Why Real Estate Needs Expert KYC Screening

  March 29, 2026

  Kirby v. Turner, 2026 BCSC 510 (Supreme Court of British Columbia) A B.C. Supreme Court case out of Kelowna shows how easily a real estate transaction can be hijacked when identity verification is treated as a paperwork step instead of a risk-control process. In Kirby v. Turner (2026 BCSC 510), a Kelowna couple believed they were buying a Big White condo at an attractive price. The true owners lived in South Africa. Unknown fraudsters impersonated them, communicated through email, provided fake passport copies, and nearly pushed the sale through. The Court called the situation “the stuff of nightmares.” The lawsuit against the realtor and brokerage failed—not because the fraud wasn’t serious, but because the judge found the defendants met the industry standard of care as it existed in 2020–2021. In other words: the process may have been “compliant,” but it still allowed a sophisticated identity attack to get dangerously far. That’s the real lesson. The core takeaway: identity risk is now a transaction risk Real estate deals involve large transfers of value, remote parties, and high trust in professional gatekeepers. That combination makes the industry an attractive target for: seller impersonation and title fraud diversion of funds (especially last-minute wiring changes) misuse of professionals and trust accounts as “validators” Once fraudsters have access to an owner’s email and basic personal information, they can look legitimate long enough to trigger major harm—buyers incur costs, sellers face privacy breaches, and lenders risk funding a transaction built on a false identity. Courts may apply “then,” but fraud operates in “now” In Kirby, the judge emphasized that professional conduct must be assessed based on what was known and required at the time. The Court also noted the outcome could differ if the same facts occurred after the industry’s understanding of impersonation fraud evolved. For the market, that’s a warning: today, this fraud is foreseeable. “We followed the old checklist” is not a strategy—especially when the financial and reputational consequences are so severe. The solution: expert KYC screening across the whole deal team Identity risk cannot be managed by one party alone. Real protection comes when mortgage lenders, real estate professionals, and lawyers treat KYC as a shared control, not a silo. 1) Real estate professionals (agents and brokerages): KYC at onboarding—before marketing Agents are often the first professional contact with the “seller.” That makes brokerages a frontline defense. Stronger controls should include: mandatory identity verification before listing or marketing, not just at acceptance/closing enhanced verification for remote or overseas clients (including independent verification or a mandatary) structured “red flag” escalation (email changes, urgency, refusal to meet, inconsistent documents) documented audit trails 2) Mortgage lenders: verify the borrower and the transaction identity chain Lenders already run underwriting, but identity screening should also address transaction integrity, including: confirming the seller’s legitimacy through independent sources where risk triggers exist ensuring funds are routed only through validated accounts and verified instructions step-up verification when anything changes late in the process Lenders are exposed not only to fraud loss, but also to enforcement and reputational risk if their controls are not aligned with modern fraud typologies. 3) Lawyers and notaries: treat identity as a fraud control, not a formality Conveyancing professionals are often the final gatekeeper—and in Kirby, a lawyer’s inability to verify identity is what ultimately prevented completion. But relying on the last checkpoint is dangerous. Legal professionals can strengthen the chain by: requiring robust identity verification for remote signers (including secure video ID processes where permitted) independently confirming authority to sell (not just relying on emailed ID copies) using out-of-band confirmation steps before accepting or changing payment instructions What “expert KYC screening” looks like in practice A modern, fraud-resistant approach usually includes: digital ID verification with liveness checks (not just a scanned passport) document authentication and tamper detection independent verification via mandatary/agency services where appropriate clear risk triggers that require enhanced due diligence consistent documentation that can satisfy regulators, insurers, and auditors The goal isn’t to make transactions slow—it’s to make them hard to fake. Bottom line Kirby v. Turner shows a harsh truth: innocent buyers and owners can do everything right and still get pulled into an identity fraud. The Court found no liability under the standards of the time—but the market cannot rely on yesterday’s baseline. If we want to reduce real estate fraud, identity risk must be mitigated upfront and collectively, with expert KYC screening used by: mortgage lenders, real estate professionals, and lawyers/notaries.

• The “Trust Account Halo” Can Backfire: Private Lending Lessons from Law Society of BC v. Soon

  March 26, 2026

  Private mortgage deals often move fast, rely on relationships, and lean on professionals to make transactions feel safe. A recent Law Society of British Columbia discipline decision is a reminder that comfort and credibility are not substitutes for controls—especially when a lawyer is involved in moving funds and documenting transactions. In Law Society of BC v. Soon, the hearing panel found professional misconduct where a lawyer used his firm trust account as a conduit for substantial loan-related funds that were not directly tied to legal services, acted despite serious conflicts involving lending companies he controlled, and kept trust records that were not readily traceable without forensic reconstruction. The practical takeaway for private lenders, mortgage brokers/administrators, and counsel is straightforward: if custody of funds, conflict disclosure, and accounting aren’t clear, documented, and auditable, “running it through a lawyer” can amplify—rather than reduce—risk. What the tribunal decided (high level) The Law Society issued an amended citation alleging eight categories of misconduct spanning roughly 2015–2020. The panel concluded the Law Society proved professional misconduct on each allegation, including: Misuse of trust: receiving and disbursing trust funds in circumstances where the funds were not directly related to legal services. Conflicts of interest: acting for clients in lending transactions while the lawyer had a direct or indirect financial interest in lending companies involved, including situations that effectively put the lawyer on both sides of the deal. Trust accounting failures: hundreds of deposits, withdrawals, and inter-ledger transfers recorded in a way that was not chronological, not easily traceable, and not supported by the required source/client/transfer documentation. Notably, the panel emphasized that even without proof of client loss or bad faith, the conduct was still a “marked departure” from what is expected of lawyers—particularly given the public importance of trust accounts and conflict rules. Why this matters to private mortgage lenders (not just lawyers) Private lenders and mortgage administrators often rely on lawyers for two things: (1) clean documentation, and (2) confidence that money is handled properly. This decision is a reminder that the appearance of structure—funds moving through a law firm trust account, documents prepared by counsel, long-standing relationships—can mask weak internal controls. From an industry standpoint, the risks fall into three buckets: Custody risk: Where exactly is the money held, and under what rules? Conflict risk: Is anyone advising you while having a financial stake in the deal? Traceability risk: If something goes wrong, can you reconstruct what happened quickly and conclusively? Key lessons (with practical implications) 1) A law firm trust account is not a general-purpose escrow for a lending business The panel treated it as serious misconduct to use trust for funds not tied to legal services. In the decision, the lawyer used trust as a conduit for ongoing lending cash flows and other non-legal transactions, including reallocations intended to cover shortfalls elsewhere. Industry lesson: “Put it through my trust account” should not be treated as a default operational model for a private lending program. If counsel is acting as true closing escrow for a discrete transaction, that’s one thing. If trust is being used as a standing bank account for the lending business, that is a red flag. Control to adopt: Maintain lender/investor funds in a dedicated operating or custodial structure designed for the business (and compliant with applicable mortgage administration rules), and limit counsel trust usage to transaction-specific legal closings with written directions and prompt payout. 2) Conflicts aren’t solved by familiarity, sophistication, or verbal understandings The panel repeatedly returned to the same theme: conflicts rules exist to protect clients and public confidence, and they require meaningful disclosure and informed consent—typically documented. In Soon, the lawyer’s interest in the lending companies created a clear conflict problem, especially where the lawyer also acted for borrowers or co-lenders. Industry lesson: Even when the borrower is experienced, even when “everyone knows” the relationships, and even when deals have historically performed, undisclosed conflicts can undermine the integrity of the transaction and create significant downstream risk (regulatory, reputational, and potentially civil). Control to adopt: Make conflict checks and conflict disclosures an operational requirement, not an afterthought. Where a lawyer, broker, or administrator has a financial interest in a lender entity or in a transaction, require: written disclosure of the interest, written informed consent where appropriate, and in many cases, separate independent counsel. 3) “Blanket authority” to deploy investor funds is high risk without hard guardrails In the decision, one lender client allegedly gave broad authority to the lawyer to use its funds in lending transactions, with limited oversight. That structure—combined with undisclosed co-lending and limited reporting—created a setting where losses and reallocations could occur without timely transparency. Industry lesson: If your model involves discretionary deployment of investor funds, your documents must be built for accountability: approvals, reporting, limits, and auditability. Control to adopt: Add clear contractual controls around: investment mandate and prohibited transactions (including related-party/co-lending limits), approval thresholds (what must be pre-approved), default/loss reporting timelines, investor statements and reconciliation standards, and audit/inspection rights. 4) Recordkeeping failures are not “technical”—they are the mechanism that allows problems to grow The panel found the trust records were so unclear that investigators had to reconstruct activity through forensic cross-referencing of handwritten notes, bank journals, deposit slips, cheques, and other documents. Transfers between client ledgers lacked required explanations and approvals; deposit sources were misrecorded; and client identification was inconsistent. Industry lesson: In private lending, recordkeeping is not clerical. It is the control surface for fraud prevention, dispute resolution, regulatory compliance, and investor confidence. Control to adopt: Require a system where every dollar can be traced from: investor source → loan advance → borrower repayment → distribution with clear identifiers (loan ID/file ID), dates, payor/payee, purpose codes, and authorization records—no bundling, no “catch-up” allocations, no unexplained inter-file transfers. Red flags private lenders should watch for Use this as a quick screen when onboarding or reviewing a lawyer, broker, or administrator involved in your deals: Trust account used for ongoing business cash flow (not just closings). “It will look more legitimate if Read more

• Mortgage Suitability Case Note: “Gift-as-Loan” Structuring, High-Cost Second Mortgages, and Missing Brokerage Oversight (Ontario FSRA Settlement)

  March 26, 2026

  What this case is about Ontario’s regulator (FSRA) settled an enforcement matter involving a licensed mortgage broker, his supervised agent, and a related lending company used to advance funds. The file raises classic mortgage suitability concerns: a borrower transaction was completed using paperwork describing funds as a non-repayable gift when the funds were actually a loan, followed by an expensive private second mortgage that was not properly captured in the brokerage’s records. The matter resolved by consent settlement (no Tribunal hearing), with administrative penalties and licensing consequences. Key facts (plain English timeline) 1) Borrowers couldn’t get requested bank credit The borrowers owned a home and wanted about $60,000 through their bank line of credit. The bank declined. 2) They were steered into a refinance with a “B” lender A refinance was proposed that required: breaking the existing bank mortgage (including an early break penalty), and moving to a B lender first mortgage. 3) The B lender imposed a condition: pay down ~$40,000 of unsecured debt The B lender would only fund if the borrowers first repaid roughly $40,000 of unsecured debt. To satisfy that condition, a gift letter was prepared stating that the $40,000 was a non-repayable gift from a family member. However, the funds were not actually a gift—they were treated as repayable and were advanced on a lending basis. 4) The “gift” was funded by a related lender, at high interest A related lending company advanced $40,000 at 14% interest, documented by a promissory note. The funds flowed through a family member and were then used to support the refinance condition. Suitability impact: characterizing repayable funds as a “gift” can hide the borrower’s true debt load and distort affordability and risk analysis. 5) The loan was later rolled into a larger private second mortgage Instead of repaying the initial advance, the borrowers requested the debt be rolled in and additional amounts advanced. This resulted in a one-year, interest-only second mortgage for $165,000 at 14%, plus a lender fee. Suitability impact: short-term, interest-only, high-rate second mortgages require heightened analysis of (i) sustainability, (ii) renewal/refinance risk, and (iii) a realistic exit plan. 6) The brokerage’s records did not show the private second mortgage The brokerage had no records of the private second mortgage. Its practice relied on the agent to report the transaction, and the transaction was not reported. Suitability/controls impact: even where a product might arguably fit a borrower’s short-term needs, the brokerage must be able to prove suitability through file documentation and supervisory review—especially for private/secondary financing. 7) Rates rose, and the borrowers needed further refinancing When the first mortgage matured, it renewed at a significantly higher rate (market changes). Later, another second mortgage was arranged with a different lender to pay out the private second mortgage. Suitability impact: this illustrates “rolling risk” in short-term private lending—borrowers can become trapped refinancing repeatedly at high cost if the exit strategy (sale, completion of construction, improved credit, etc.) does not materialize. Regulatory findings / admissions (high level) In the settlement: The lending company admitted it breached the Act by engaging in mortgage lending activity without being licensed. The licensed broker admitted breaches under the Act/regulation connected to the conduct in the file (including the supervision/controls breakdown reflected by the undisclosed second mortgage). Outcome (penalties and restrictions) The licensed broker paid an administrative penalty and was restricted to Mortgage Agent Level 2 for two years(with limited ability to support other agents under required oversight). The lending company paid a larger administrative penalty. Why this matters for mortgage suitability rules (the takeaway) This settlement lines up with FSRA’s suitability expectations (the “reasonable steps” approach) in three practical ways: Source-of-funds accuracy is suitability-critical: if funds are repayable, they should be treated and disclosed as debt—calling it a “gift” can undermine the suitability analysis and mislead decision-making. Private second mortgages are high-risk products: high rates, interest-only payments, fees, and short terms make the borrower’s exit strategy and ability to carry/pay out the debt central to suitability. If it’s not documented, it’s not defensible: brokerage oversight systems must capture and review private/secondary/related-entity transactions so the file shows the rationale, alternatives considered, and proof the client understood the risks.

• Mortgage Services AML Guidance: Key Lessons from Ghotaymi v. BCLC (2026 BCSC 191)

  March 16, 2026

  In Ghotaymi v. BCLC (2026 BCSC 191), the court upheld a risk-based approach to anti-money laundering controls that is directly relevant to mortgage brokers, lenders, and other mortgage service providers. The key message for the mortgage industry is that you do not need “proof” of money laundering to take enhanced due diligence steps—if the facts reasonably indicate higher risk, you can impose additional verification requirements as a preventative compliance measure. Risk indicators can justify enhanced due diligence—even without wrongdoing In the case, the customer repeatedly made cash transactions just below a known trigger threshold. The regulator treated that pattern as a classic red flag for “structuring” (i.e., breaking transactions into smaller amounts to avoid scrutiny). The court agreed it was reasonable to respond to that kind of pattern with tighter controls, even though there was no allegation the customer was actually laundering money. Mortgage industry parallel: if a borrower, investor, or third party payer shows patterns that resemble threshold avoidance—e.g., repeated deposits just under internal review cutoffs, unusual payment splitting, inconsistent documentation, or rapid movement of funds—your compliance team can require additional source-of-funds documentation, apply heightened review, or decline to proceed until risks are addressed. The trigger is the risk pattern, not a criminal finding. “Enhanced conditions” are more defensible when they are framed as risk management, not punishment A major reason the regulator succeeded is that the measure was framed as administrative and preventative—conditions on how the customer could transact—rather than a penalty or accusation. The court viewed the control as relatively low intrusion: the customer could still participate, but had to prove where funds came from. Mortgage industry parallel: when you need more information, position it as a standard risk-control step, not an accusation. For example: “Based on transaction characteristics, we require additional verification of the source of down payment and closing funds.” Avoid language that implies the client is a criminal; focus on your regulatory obligations and risk controls. You can act quickly, but you should still explain the “why” The court accepted that organizations may need to act quickly to control AML risk and do not always have to provide advance notice or a pre-decision hearing before applying enhanced controls. However, the court also signaled that customers should generally receive an understandable explanation after the fact—especially because they cannot meaningfully respond or seek reconsideration unless they know what triggered the concern. Mortgage industry parallel: it is usually reasonable to pause a file or require enhanced documentation immediately when risks emerge (particularly close to closing), but you should still provide a clear, non-sensitive explanation. A short rationale such as “the payment pattern is inconsistent with the stated source of funds” is often enough. This also reduces complaint risk and improves the defensibility of your file if FINTRAC ever reviews it. “Overinclusive” controls can be acceptable if they are proportionate The customer in the case had an innocent explanation that made sense. The court still upheld the control because the public interest in preventing money laundering is high, and the verification step was not overly burdensome. Importantly, the court accepted that a risk-based system will sometimes capture legitimate customers—what matters is that the response is proportionate and tied to a real risk rationale. Mortgage industry parallel: you can require bank statements, deposit history, proof of sale proceeds, gift letters with corroboration, corporate ownership details, and explanations for unusual flows—even if the client insists everything is legitimate—so long as your requests are reasonable and connected to the risk you are trying to mitigate. Documented policies matter BCLC relied on a detailed AML manual with defined risk criteria (e.g., structuring indicators, profile inconsistent with activity). The court found it persuasive that the decision aligned with written risk factors rather than an ad hoc hunch. Mortgage industry parallel: your strongest defence is a well-written AML program that (1) defines higher-risk patterns, (2) lists what enhanced measures you apply in response, and (3) requires documentation of the rationale in the file. When an underwriter escalates a file, the record should clearly show which red flag was observed, what steps were taken, and what conclusion was reached. Privacy: collecting financial information is permitted when it is necessary for AML compliance The customer argued the regulator had no right to collect private banking information. The court rejected that argument because the information was directly connected to AML obligations and necessary for the regulator’s mandate. Mortgage industry parallel: asking for bank records and source-of-funds documents is generally defensible when it is necessary to meet AML obligations—but you should still follow privacy best practices: collect only what you need, explain the purpose, restrict access, and apply retention limits. A key operational warning: “indefinite flags” create governance risk One fact the court noted (without deciding it) was that the conditions were effectively indefinite and that removals were rare. In any regulated industry, “once flagged, forever flagged” can create fairness, customer, and governance problems. Mortgage industry parallel: build a real off-ramp. If you categorize a client as higher risk, you should have periodic review criteria, clear documentation of what would satisfy the concern, and appropriate second-line compliance oversight. Otherwise, your process can look arbitrary, even if your initial decision was reasonable. Practical bottom line for mortgage services clients This case supports a core AML principle: you are allowed (and often expected) to be cautious. When transaction patterns suggest elevated ML risk, you can require enhanced source-of-funds verification or slow/stop a transaction—even if you cannot prove illicit activity—provided your steps are proportionate, policy-based, documented, and accompanied by a clear explanation.

• Why Exempt Market Dealers Are “Limited Dealers” — and Why It Matters Under the New Mortgage Services Act

  March 11, 2026

  1. The current legal definition: “limited dealer” means every dealer who is not an investment dealer As of the consolidated Securities Rules current to March 2026, British Columbia defines “limited dealer” in a deliberately broad way. Section 6 of the Securities Rules (B.C. Reg. 194/97) provides: “In these rules ‘limited dealer’ means a person registered in a category other than the category of investment dealer.” That one sentence is doing a lot of work. In practical terms, a “limited dealer” in B.C. is any registered dealer that is not registered as an investment dealer. Because Exempt Market Dealers (EMDs) are registered in the exempt market dealer category (not the investment dealer category), they fall squarely within this definition. The same is true for other non–investment dealer categories commonly seen in B.C., such as mutual fund dealers, scholarship plan dealers, and other non‑investment dealer registrants recognized under Canadian and B.C. registration frameworks.   2. Why the heading mentions mortgages (and why that confuses people) If you look up section 6, you’ll notice its heading refers to mortgages (e.g., “Limited Dealer – Mortgage Brokers Act Regulations”). That heading often causes readers to assume “limited dealer” is a mortgage industry registration concept. It isn’t—at least not anymore. The heading is widely understood as a historical remnant from an earlier regulatory era when the term was connected more narrowly to mortgage-related activity under the old Mortgage Brokers Act framework. Today, however, the operative text of section 6 is clear: the term is defined by dealer registration category, not by business line. The takeaway: ignore the heading and read the definition. The definition is categorical: non‑investment dealer = limited dealer. 3. The turning point: 2009 and the NI 31‑103 harmonization The modern breadth of “limited dealer” is the result of a major reform in 2009. Effective September 28, 2009, B.C. amended its Securities Rules to align with National Instrument 31‑103 (the national registration regime). Under B.C. Reg. 226/2009, B.C. replaced older concepts and streamlined definitions so provincial registration categories would map cleanly onto the national framework. From a practical standpoint, the 2009 reform did two things relevant to “limited dealer”: It replaced a narrower, historically mortgage‑linked conception with the current broad category-based definition; and It made “limited dealer” a catch-all label for any dealer registrant who is not an “investment dealer.” So, once the exempt market dealer category became part of the standard landscape under NI 31‑103, the conclusion became straightforward: EMDs are limited dealers because they are not investment dealers. 4. The 2019 expiry that pulled more mortgage-market players into “limited dealer” status A second development changed the population of firms that ended up registered as limited dealers, even though the statutory definition itself did not change. For years, some mortgage investment businesses relied on a local exemption (commonly discussed in industry as the Mortgage Investment Entity (MIE) exemption, BCI 32‑517). When that exemption expired on February 15, 2019, many market participants could no longer operate without dealer registration for securities trading activity. The practical result: more mortgage-focused businesses registered as EMDs (or other non‑investment dealer categories)—which means they became limited dealers under section 6. This matters because it illustrates a common compliance pathway in B.C.’s mortgage investment market: mortgage investment distribution activity that moves under securities regulation often lands in the EMD bucket—and that bucket is, by definition, “limited dealer.” 5. The key compliance issue under the new Mortgage Services Act: the exemption is for investment dealers, not EMDs Here is where the “limited dealer” label stops being just a definitional curiosity and becomes operationally important. Under the old Mortgage Brokers Act Regulations, a well-known exemption applied to Securities Act registrants—but it excluded limited dealers. In other words, the exemption was drafted to apply to Securities Act registrants “other than a limited dealer” for certain syndicated mortgage activities (notably, syndicated mortgages other than “qualified syndicated mortgages”). That structure meant: Investment dealers could benefit from a mortgage-licensing exemption (avoiding duplicative oversight), but Limited dealers (including EMDs) could not. Under the new Mortgage Services Act regime, that policy is effectively carried forward but is expressed more directly. Under the Mortgage Services Regulation, the licensing exemption is framed around the investment dealer category—meaning it is not available to EMDs and other limited dealers. Put plainly: If you are registered as an investment dealer, there is a targeted exemption from mortgage licensing requirements for specified activities involving syndicated mortgages (other than qualified syndicated mortgages), subject to conditions (including compliance with securities law). If you are an EMD, you are a limited dealer, and you should not assume you are covered by that mortgage-licensing exemption. This is a common pressure point in practice because some EMDs have historically structured syndicated mortgage distributions relying on exemptions in the mortgage regime, or by pairing mortgage and securities compliance in ways that worked under the prior framework. The new MSA framework is designed to be clearer and more explicit about who gets the exemption—and it largely points in a single direction: investment dealers only. 6. Practical takeaway for EMDs: registration category drives mortgage-licensing exposure For compliance teams, counsel, and market participants, the critical step is to start with the registration category: Are you registered in B.C. as an investment dealer? If yes, you may fit within the mortgage-licensing exemption for certain syndicated mortgage activity (subject to the specific regulatory conditions and scope). Are you registered as an exempt market dealer (or another non-investment dealer category)? If yes, you are a limited dealer under Securities Rules, section 6, and you are generally outside the investment-dealer exemptionin the mortgage licensing regime. This can create real operational consequences—licensing, supervision, permitted activities, and how offerings are structured—especially for syndicated mortgage products and mortgage investment structures that sit at the intersection of securities regulation and mortgage services regulation.

• CAPL Letter to BCFSA: Clarification Request on NQSM/NQSMI Treatment Under the Mortgage Services Act Transition

  February 21, 2026

  CAPL has submitted a letter to the BC Financial Services Authority (BCFSA) requesting confirmation of our understanding of how non-qualified syndicated mortgages and non-qualified syndicated mortgage investments (NQSMs/NQSMIs) are treated under British Columbia’s current Mortgage Brokers Act framework and the upcoming Mortgage Services Act (expected to come into force in or around October 2026). The letter focuses on the practical impact of the transition for exempt market dealers (EMDs) involved in NQSMI distributions, including the expected narrowing of exemptions and the resulting need to ensure any “mortgage services” activities are conducted by appropriately licensed entities. We also ask for guidance on whether an affiliated-entity structure—where one related entity handles securities distribution as an EMD and another related entity conducts mortgage services as an MSA licensee—can be used as a compliant model, and what BCFSA’s expectations may be regarding roles, disclosures, supervision, and controls. We are sharing this correspondence to keep members informed and to support proactive planning for the MSA transition. —-see below— Todd Healey Practice Standards Advisor BC Financial Services Authority 600-750 West Pender Street Vancouver, BC V6C 2T8 Phone: 604.660.3555 | Toll-free: 1.866.206.3030 www.bcfsa.ca Re: Request for confirmation – treatment of non-qualified syndicated mortgages (NQSMs/NQSMIs) under the Mortgage Brokers Act and Mortgage Services Act; applicability to exempt market dealers and affiliated-entity models Dear Mr. Healey: I am writing on behalf of the Canadian Association of Private Lenders to request confirmation of our understanding of the regulatory framework applicable to non-qualified syndicated mortgages (“NQSMs”) in British Columbia, including the expected shift from the Mortgage Brokers Act (“MBA”) to the Mortgage Services Act (the “MSA”), anticipated to come into force in or around October 2026. We appreciate that BCFSA administers the mortgage services regime, while the securities distribution of NQSMIs is overseen by the British Columbia Securities Commission (“BCSC”). We recognize that any response may be limited to general guidance and not constitute a binding determination. That said, clarity on the points below would be helpful to industry members as they prepare for the transition to the MSA. Our understanding of the current framework (MBA regime) Based on our review of the MBA and its regulations, we understand that under the current MBA regime an exempt market dealer (“EMD”) registered under the BC Securities Act may participate in the distribution of NQSMIs without needing to register as a mortgage broker, due to the exemption in MBA Regulation 18(2) that applies to registrants under the securities legislation in connection with syndicated mortgages other than “qualified” syndicated mortgages. In practice today, we understand the market commonly operates with a split of responsibilities, where: (a) the EMD conducts investor-facing distribution activity under securities law (including solicitation, suitability, and trade execution under prospectus exemptions); and (b) a licensed mortgage brokerage and/or administrator originates, registers, and administers the underlying mortgage and provides the applicable mortgage disclosure documentation to borrowers. Our understanding of the future framework (MSA regime) We further understand that the MSA and its regulations will materially change the mortgage licensing law treatment of EMDs involved in NQSM offerings, including that: (a) the broad MBA regulatory exemption that has allowed securities registrants (including EMDs) to engage in syndicated-mortgage-related activity without MBA registration/licensing will no longer be available to EMDs once the MSA is in force; and (b) the MSA regulatory exemption will be more narrowly framed such that only “investment dealers” (CIRO/IIROC investment dealers), while compliant with securities law, will be exempt from MSA licensing for certain specified activities in relation to syndicated mortgages (other than qualified syndicated mortgages), and that EMDs will not be included in that exemption. We also understand the MSA definition of “mortgage services” is broad and may capture typical EMD-facing activities involved in marketing and selling NQSMIs (including solicitation of lenders/investors, providing information or advice to prospective lenders/investors, and trading in mortgages for others). On that basis, our understanding is that, once the MSA is in force, an EMD that continues to distribute NQSMIs in BC will need to ensure that any “mortgage services” activities are carried out by an appropriately licensed person or entity (or within a specific exemption), and that an EMD acting alone, without an MSA licence, could be offside the MSA even if compliant with securities registration requirements. Confirmation requested We respectfully request confirmation (or correction) of the following: (a) Under the current MBA regime, an EMD may distribute NQSMIs without needing mortgage broker registration/licensing under the MBA, due to MBA Regulation 18(2). (b) Once the MSA is in force, an EMD will not be exempt from MSA licensing for “mortgage services” activities relating to NQSMs (even where the securities distribution is properly conducted under securities law). (c) The MSA regulatory exemption for syndicated mortgage activity is intended to apply to CIRO/IIROC “investment dealers,” but not to EMDs. Affiliated-entity model – EMD + MSA licensee working together Assuming the above understanding is correct, we would also appreciate guidance on whether a related-entities structure is acceptable from the perspective of the MSA, where: (a) one entity (Entity A) is an EMD registered under securities legislation and conducts the securities distribution of the NQSMI (including KYC/KYP/suitability, delivery of offering documentation where applicable, subscription processing, and exempt trade reporting); and (b) a separate related entity (Entity B) is licensed under the MSA as a mortgage brokerage (and/or other applicable licence class) and performs the “mortgage services” activities (including, as applicable, mortgage solicitation/negotiation, required mortgage disclosures to lenders/investors, mortgage origination/registration, and ongoing administration). In particular, we request confirmation or guidance on: (i) whether it is acceptable for “mortgage services” activities to be performed by Entity B (the MSA licensee) while Entity A (the EMD) performs the securities distribution, provided that Entity A and its representatives do not themselves perform “mortgage services” unless appropriately licensed; (ii) any BCFSA expectations regarding allocation of responsibilities, client-facing disclosures of the two-entity arrangement, supervision and controls for individuals who may hold roles with both entities, and how communications to investors should be structured to avoid an unlicensed person being viewed as providing “mortgage Read more

• CAPL Letter to Finance Canada & FINTRAC: Pragmatic AML Guidance to Support Financial Inclusion

  February 21, 2026

  CAPL submitted a letter (reproduced below) to the Minister of Finance and FINTRAC as the federal government examines financial inclusion for vulnerable Canadians and sectors facing “de-banking.” Based on what our members see in AML onboarding every day, we’re calling for clear, pragmatic guidance that helps all reporting entities verify identity and manage risk without unnecessarily excluding people who can’t reasonably produce standard identification. Attention: The Honourable François-Philippe Champagne and Sarah Paquet, Director and Chief Executive Officer Dear Minister Champagne and Ms. Paquet, Re: Unintended financial exclusion of under housed and other vulnerable Canadians under the AML compliance regime I am writing to request targeted, public FINTRAC guidance that clarifies how reporting entities should apply Canada’s anti money laundering and anti-terrorist financing requirements when serving under housed and under banked Canadians and other vulnerable people who cannot reasonably produce or retain standard identification. CAPL represents private mortgage lenders and mortgage market participants. Industry members may serve consumers, including borrowers who may be under housed, under banked, or otherwise unable to meet standard identification expectations. We see the practical impact when customers are unable to open or keep bank accounts or are repeatedly asked for documents they cannot reasonably provide. These barriers disrupt legitimate housing related financial activity and can push transactions toward cash and informal workarounds. Clear, operational FINTRAC guidance would support consistent risk-based onboarding and help keep legitimate activity in regulated channels. This is not a request to weaken AML standards. It is a request to make the rules work the way they are meant to work. We get better AML outcomes when legitimate people and legitimate activity stay in regulated banking, where transactions can be monitored and suspicious activity can be reported. Context and urgency: unclear rules are leading to refusal of service and weaker transparency This issue needs attention now because, in practice, many institutions do not feel safe using current FINTRAC identification methods. When guidance is not clear, the easiest decision for a business is often to say no. That is especially true when staff are worried about regulatory pressure, such as a FINTRAC examination where they are criticized for not accepting anything other than a standard document set. The result is that un-banked clients can be turned away, repeatedly asked for documents they do not have, or have accounts restricted or closed. In plain terms, this is de-banking or de-risking. This problem also shows up for legitimate businesses in sectors that some financial institutions treat as higher risk. These are sometimes called vulnerable sectors because they are more likely to face refusal of service, even when they are trying to comply. Examples can include remittance businesses, fintech businesses, digital asset and payment service providers, small money services businesses, and certain cash intensive or platform-based businesses. When banks refuse to provide accounts or basic payment services to legitimate businesses in these sectors, it can force them into workarounds that reduce transparency. It can also damage competition and push activity away from regulated channels. De-banking can seriously harm legitimate people and legitimate businesses. It can also make AML outcomes worse. If people cannot use regulated accounts, they rely more on cash, informal help from others, and unregulated channels. That reduces transparency and makes it harder for the AML system to spot and stop money laundering, terrorist financing, and other serious crime. Canada needs clearer guidance so the risk-based approach is applied consistently. The goal should be to manage risk with practical controls and good records, not to avoid risk by avoiding vulnerable sector customers. The current imbalance: strong transparency for complex wealth, less clarity for basic access needs Canada has measures aimed at sophisticated money laundering schemes, including beneficial ownership and control requirements for entities and enhanced expectations around complex ownership structures and higher risk segments. These measures are often most manageable for large institutions and clients with stable documentation, fixed addresses, and administrative continuity. At the same time, many Canadians who are low risk and who have simple and traceable sources of funds, such as wages, pensions, CPP, OAS, and provincial income and disability supports, still struggle to open basic banking services because identity verification frameworks often assume stable housing, safe storage of documents, reliable digital access, and the ability to repeatedly re verify identity on demand. Undeserved vulnerability in tangible terms: who is excluded and why this is not a risk signal The people affected are not hypothetical. They show up at branches and onboarding desks every day. Many are trying to get back on their feet and need a bank account to receive wages or benefits, pay rent, and avoid carrying cash. This includes under housed and under banked Canadians getting back on their feet, Indigenous peoples facing barriers to documentation and verification, survivors of domestic or family violence, people transitioning from incarceration or institutional care, people living with serious mental health conditions or cognitive impairment, and vulnerable seniors. Across these groups, the common issue is not secrecy or criminal intent. It is that their lives are not set up to keep documents safe, keep addresses stable, or complete multi step verification easily. Why this is an anti-money laundering effectiveness issue Excluding people from regulated banking does not reduce money laundering and terrorist financing risk. It increases cash handling, pushes transactions into informal arrangements, reduces transaction visibility, and makes monitoring and reporting harder. Australia’s model: what AUSTRAC does specifically that Canada is missing Australia has addressed these implementation problems by publishing dedicated guidance on assisting customers who do not have standard forms of identification, and by publishing guidance on de-banking and de risking for sectors assessed as higher risk. Australia’s approach is designed to create a shared understanding of the risk-based approach so businesses and banks do not treat unclear guidance as a reason to refuse service. Several features of AUSTRAC’s approach are relevant to Canada: Australia publishes standalone public guidance in plain language that is meant to be used operationally Australia explicitly names vulnerable cohorts, including homelessness, Indigenous customers, domestic violence, and Read more