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CSA wants to bolster rules on syndicated mortgages

The Canadian Securities Administrators (CSA) proposed a stricter set of rules to address the growing concerns about the selling of syndicated mortgages.

According to a report for the Financial Post, the new rules will remove exemptions that enabled investments to be sold without registering with regulators or filing a detailed prospectus.

CSA said such offerings potentially raise issues on investor protection, particularly when they are sold to retail investors. The regulator added that these deals could be funding highly speculative projects with relatively little security for investors.

CSA laid out proposals to limit the use of mortgage exemptions for such products in certain jurisdictions. Under the proposed rules, dealer registration would be required even if exemptions are obtained, which means mortgage brokers may be compelled to become registered as exempt-market dealers (EMD)

The new rules would also intensify the disclosure obligations to prospective purchasers. Additionally, issuers would be required to deliver property appraisals prepared by an independent, qualified appraiser.

The CSA notice said: “The purpose of the Proposed Amendments is to introduce additional investor protections related to the distribution of syndicated mortgages and to increase harmonization regarding the regulatory framework for syndicated mortgages across all CSA jurisdictions.”

Commenting on the proposals, CSA chair Louis Morisset said these amendments introduce a common regulatory approach for syndicated mortgages across Canada.

“The measures also enhance investors’ ability to make informed decisions when purchasing these investments,” he said.

The Financial Post reported that Ontario’s real-estate boom in recent years has led to increased interest in syndicated mortgages. The market expanded from $3.7bn in 2014 to $6.6 billion by the end of 2016.

The CSA has set a 90-day consultation period on the proposed changes, which would be harmonized across the country. To read the CSA notice, click here.