Mortgage Broker

Summer 2019

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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Page 28 of 47

quantity (not quality) of residential mortgage applications they process, we believe brokers have less incentive than a lender's own staff to prevent fraud." We understand that S&P has, as a result of this view, downgraded the risk assessment of smaller banks which utilize mortgage brokers in the origination process. In response, we advised S&P that in most provinces across Canada, mortgage brokers are licensed professionals who must adhere to strict regulatory requirements. Unlike mortgages processed by a bank's internal staff, mortgage brokers are directly accountable to an external, independent regulator. In contrast, bank mortgage specialists, employed by banks to arrange mortgages internally, lack external accountability. In addition, the industry itself imposes very high expectations on its members. e act of getting cut off from a lender seriously impairs a broker's ability to arrange mortgages and can end a mortgage broker's career. Many lenders have a zero-tolerance policy for fraud and will, for instance, cut off a broker from further business for seemingly innocuous conduct, such as changing a date on application without the borrower's express consent. Furthermore, all regulatory action against licensed mortgage brokers is reported on a database called REDX, which oen results in the broker's getting "black-balled" by lenders for even light regulatory infractions. e industry therefore polices itself very strictly and is thereby "self-regulating." Opening banking and regulatory blurring: We are concerned that opening up the financial services ecosystem to a myriad of FinTech service providers will blur the lines between regulated financial services and completely unregulated peripheral, analytical or informational support services. 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 are engaging in "regulated activity" and require regulation? Will third-party FinTech providers undertaking critical, outsourced functions from a regulated entity also require regulation? Compounding this problem is that service providers may operate outside of Canada's borders, making policing near impossible. e disconnect (discussed above) 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. 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. STRATEGIC INITIATIVES We have the following comments on the MBRCC's proposed strategic initiatives: Enhance the practice of the professional regulation and strengthen the MBRCC. Enhance collaboration amongst regulators and promote regulatory best practices. We support this strategic initiative, but you may wish to also consider enhancing collaboration with mortgage broker associations and industry groups, which possess practical industry knowledge and can assist with the development of best practices. Ensure that mortgage brokers have appropriate business and levels of professional knowledge and experience coupled with integrity and competence. We strongly support this initiative. A robust licensing regime is one that ensures that licensees understand not just the regulation which it is subject to, but also how to conduct business competently and ethically. Business knowledge and sound practice should be the subject, in particular, of continuing education, as business practices evolve and new issues emerge over time. In addition, we are of the view that new licensees should receive robust practical education so that they are better equipped from the outset of their careers to conduct sound mortgage brokering activity. ank you for providing CMBA with the opportunity to respond to your strategic planning consultation. I trust that the above feedback will be of some benefit to you and your regulator members. Please let me know if you would like additional feedback or discussion on any of comments made above. CMB MAGAZINE summer 2019 | 29 mortgageregulation Unlike mortgages processed by a bank's internal staff, mortgage brokers are directly accountable to an external, independent regulator."

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