The Financial Services Commission of Ontario (FSCO) utilizes a risk-based approach to regulation, which focuses on allocating valuable regulatory resources to those areas that are deemed to have the greatest risk. Under this regulatory approach, FSCO goes beyond just enforcing requirements that are set out in legislation. Instead of examining all risks, FSCO focuses its attention on those risks that have the potential to cause the greatest degree of harm. The benefit of this approach is that regulatory resources are maximized and compliance costs are minimized.
During the spring and summer of 2009, FSCO conducted a review of the mortgage brokering industry as part of its compliance review initiative. This review focused on how the overall industry – particularly at the individual brokerage level – had prepared itself to meet the compliance requirements under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA); with specific focus on sections 40 to 48 of Ontario Regulation 188/08 – Mortgage Brokerages: Standards of Practice.
FSCO’s strategy for the review included the following:
- Consulting with key industry stakeholders about the compliance requirements and steps that would be taken to educate and promote compliance in the industry.
- Conducting significant outreach activities throughout Ontario that assisted in the development and direction of the reviews.
- Selecting a random sample of 128 mortgage brokerages (or approximately 10 per cent of all brokerages in Ontario) for the on-site reviews.
- Developing an examination program to test the sample’s compliance with the MBLAA and Ontario Regulation 188/08.
- Having in-house training sessions for examiners who would conduct on-site field reviews at the selected brokerages.
- Following-up with brokerages after the reviews.
- Collecting and analyzing data once the reviews had concluded.
Through this process it was determined that the reviews would focus on specific standards under the MBLAA and regulations, particularly standards relating to policies and procedures, oversight and corporate governance. Although policies and procedures do not guarantee compliance with legislation, mortgage brokerages are expected to establish and implement policies and procedures that are reasonably designed to ensure compliance with the requirements under the MBLAA. The findings from FSCO’s reviews indicate that most mortgage brokerages had established policies and procedures in accordance with the regulations. However, the quality of those policies and procedures was not sufficient to mitigate the risk of non-compliance with the law and the potential for harm to consumers.
The results of the reviews provide support for FSCO’s risk-based approach to regulation and its positive impact on the mortgage brokering industry in promoting higher standards of practice for consumer protection in Ontario.
View the complete Report on FSCO’s Compliance Reviews of Mortgage Administrators (June 2011) Size: ## kb