Mortgage Broker

14 | spring 2019 cmba-achc.ca CMB MAGAZINE openbanking While duly licensed mortgage brokers act for borrowers to find them the best mortgage options, bank employees do not. ey may superficially resemble mortgage brokers but they work for the bank and do not act in the borrower's best interests. As you likely know, certain sales tactics utilized by bank employees have recently come under review by the Financial Consumer Agency of Canada. is disconnect between one set of federal regulations for oversight of mortgage transactions originated within the walls of traditional banks and a different set of regulations for those facilitated by an independent mortgage broker is already very confusing for consumers and comes as direct result of federal banking policies' not taking provincial jurisdictional concerns into account. A fragmented financial services ecosystem populated by open banking service providers will inevitably lead to even greater overlap and confusion between federally and provincially regulated service providers. Some leaders, such as Christine Lagarde, the managing director of the International Monetary Fund, have commented that: "Traditionally, regulators have focused on overseeing well-defined entities. But as new service providers come on stream in new shapes and forms, fitting these into buckets may not be so easy. ink of a social media company that is offering payments services without managing an active balance sheet. What label should we stick on that?" Regulation for regulation's sake is never desirable. However, policy-makers have already determined that there is a need to ensure a certain level of consumer protection through authorizations and licensing regimes. A fragmented financial services ecosystem will lead to regulatory gaps and inconsistencies and perhaps create an even greater need for the public to rely on licensed financial intermediaries. We therefore urge the Advisory Panel to ensure that its recommendations are guided by an understanding of the regulatory scope of the federal and provincial governments, and in particular the role of provincially licensed financial intermediaries such as mortgage brokers. OPEN BANKING BEGINS WITH INDEPENDENT INTERMEDIARIES IN THE 1970S We note that the Consultation Document on Open Banking does not discuss the role of financial intermediaries. However, in some sense, financial intermediaries, such as mortgage brokers, who emerged in the 1970s as regulated professionals under provincial licensing legislation, represent the inception of open banking. As banks began to delve into the mortgage lending business, with the development of amortized terms and rapidly rising interest rates in the late 1960s, mortgage brokers found a niche role in steering borrowers to various mortgage options available from an array of different financial institutions. ey were able to assist borrowers in mortgage shopping, enabling borrowers to move from bank to bank to obtain the best mortgage at competitive terms. Mortgage brokers have clearly played a discernible role in making financial products cheaper and more accessible to consumers. In the mortgage origination context, the open banking rationale of sharing borrower information to enhance financial decision- making has always existed. Mortgage brokers provide mortgage lenders with a seemingly endless trail of information and documentation to facilitate the approval process and ensure underwriting rigour. Borrowers used to hand- deliver or fax to their broker wads of paper including bank statements, tax documents, contracts and the like. Now, of course, these documents are digitized and sent electronically by email or a third-party electronic conduit. On the flip side, mortgage brokers are then able to utilize customer-related information to assist borrowers in making important financial decisions. Given the services already provided by brokers, open banking may not radically change the current mortgage borrower's consumer experience. ere is already a trend in the mortgage brokering industry towards the adoption of FinTech, and the proliferation of FinTech tools will surely make the process more efficient and accessible. FinTech is clearly a catalyst for evolution and not revolution in banking. SUMMARY OF RECOMMENDATIONS ank you for the opportunity to provide comments on your consultation and review into open banking. We can summarize our recommendations as follows: n Review the law around data ownership with a view to resolving its legal ambiguity and, more importantly, ensure that consumers have the power to share data with service providers; n ird-party entities which hold financial data should have to meet security standards for data retention and be held accountable for breaches of such standards; n Ensure that there is a consumer protection framework in place which is guided by an understanding of federal and provincial jurisdictions governing financial services, and the consumer protection rationale behind that regulation; and n Ensure that there is a consumer protection framework in place to determine how unregulated third-party service providers will be accountable when regulated financial service providers parse out bits and pieces of their services to them. Please know that we are available for further engagement in your consultation process at any later stages, if desired. When regulated entities parse out bits and pieces of their financial services to third- party contractors, how will we determine whether those new financial service providers require regulation?"

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