REMARKS CMBA-BC FUNDAMENTALS 2019

Transcription

1 Canadian Mortgage Brokers Association B.C. Conference and Trade Show Parq Hotel Vancouver, B.C. February 25, 2019 Chris Carter Acting Registrar of Mortgage Brokers Financial Institutions Commission Check Against Delivery 1

2 REMARKS BY ACTING REGISTRAR OF MORTGAGE BROKERS, CHRIS CARTER INTRODUCTION Good morning and thank you for the warm introduction. Firstly, my congratulations to CMBA-BC President, Camelo Rodriguez, and your Association on another successful conference. We welcome open lines of communication with industry, and appreciate the invitation to speak with you this morning. Preparation for the future is this morning s theme, and I am pleased to offer my perspectives on this important topic. Firstly, your regulator is not immune to change, and in 2019 we expect to transition to a new corporate structure Crown agency. Today, I will provide you with some information on this transition, and what it means for you. Secondly, we have entered a new phase of the real estate cycle, with new Government priorities, and public expectations. Today, I will be offering you some regulatory tips to navigate this this new landscape. Thirdly, I will be reinforcing our priorities as a regulator. I last spoke at your conference two years ago, and while we have made good progress in some areas, plenty of work remains in others. 2

3 CROWN AGENCY FICOM is currently a part of the BC Ministry of Finance. Government has proposed to establish FICOM as a Crown agency, with greater independence from Government, and its own governing Board of Directors. Arms length regulators are nothing new think of, for example, Consumer Protection BC and align with international best practices established by bodies such as the IMF. The idea is that an independent regulator: Has greater flexibility to set priorities and allocate resources, Can respond quicker to rapid changes in the financial services sector, and That decisions in the public interest can be made free of potential political influence. So as FICOM transitions to Crown agency, what does that mean for industry? Firstly, a modern regulator. Industry has been consistent and vocal in its support for a strong regulator and consumer protection regime, and we appreciate that support. 3

4 Secondly, in the short term, day-to-day interactions with your regulator will look much the same as they do today. Behind the scenes, the Crown will have a Board appointed by Cabinet, and that Board will appoint the Registrar of Mortgage Brokers. The Registrar of Mortgage Brokers will continue to regulate your industry. Thirdly, and perhaps most importantly, over time you will see service improvement and greater transparency and accountability to industry. With greater flexibility to allocate resources, we will have the capacity to invest more in areas that we know are important to you, for example, education, and IT infrastructure. We will also have the capacity to strengthen the regulatory program to ensure only the right people enter industry, that those people maintain high conduct standards, and we address those who don t. In addition, Crown agencies receive mandate letters from Government, and must report publicly on performance measures that demonstrate achievement of priorities. Lastly, FICOM is funded by industry, and as a Crown agency we must publish audited financial statements that show how we are using those funds. 4

5 As savvy businesswoman and businessmen, you understand that business improvements come with a price tag. And we look forward to engaging you to discuss fee changes to support the modernization of your regulator. The current fee model dates back to 2004 well before the iphone and well before the Great Recession, when average detached home prices were $550,000 (according to the Real Estate Board of Greater Vancouver). In summary, Crown agency means a modern regulator that is better equipped to protect the public, improved service standards, and increased regulator transparency and accountability to industry. This all translates into increased public confidence in your industry. You can expect more information and engagement in the coming months, as both Government and FICOM move closer to Crown establishment. REAL ESTATE Real estate was again the dominant public, political, and regulatory issue in BC in This morning, I wanted to offer my thoughts on some key developments in 2018, and some regulatory tips to help the mortgage broker industry navigate change in 2019 and beyond. Firstly, consumer debt remains at record highs and affordability remains a challenge. 5

6 British Columbians are counting on you, more than ever, for sound advice and recommendations that are in their best interest. o You need to know your client, know your products, and deliver on your promise to act in your client s best interest. o After all, in CMBA-BC s own words, your best advice comes from a mortgage broker. o And your best advice MUST include, when necessary, advising a client that they are borrowing beyond their reasonable means. British Columbians are also relying on you for simple, clear, and easy to understand information that equips them to make an informed decision. o The public uses your services precisely because its difficult to understand dense, technical, and complex information and to understand the implications of decisions. o For most British Columbians, mortgage decisions cannot be glossed over, and its your job to ensure they truly understand the decision they re making. Lastly, I encourage you to be extra vigilant when it comes to private lending. o Private lending has of course a legitimate place in any healthy real estate market o and I encourage you to ALWAYS look to set your client up for future success when referring to private lenders. 6

7 o Needless to say, any actual or perceived predatory lending practices will severely impact your industry s reputation and invite the attention of your regulator. o On the investment front, I only need to point to the Fortress file in Ontario, for an example of a real estate investment scheme involving mortgage brokers that has ended very badly for many investors. o Extra vigilance in relation to private lending means: ALWAYS having the best interests of your client front of mind your borrowers and your investors; Appropriately managing your conflicts of interest after all, the public does not expect a broker, who has lenders fighting for their business, to also be a lender; Proactively developing standards to protect consumers and strengthen practices in your industry. Secondly, the real estate market is softening. This reinforces the need to ALWAYS place the best interests of your client first. When clients find out their property is worth less than what they paid for it, you can rest assured that your actions and advice will be scrutinized, and your clients will be much more willing to contact the regulator. 7

8 In the current market uncertainty, it is no longer about how to get to yes and learning when to say no. That may be the best thing you do for your clients today. The mortgage broker industry has, for many years, sought to diversify through involvement in private lending, real estate, insurance, financial planning, and so forth. While diversification may offer convenience and a wider suite of services to your clients, your clients are not being treated fairly when these services might best be provided by other regulated service providers who can offer the same level of choice and independent advice, for example, on an investment product or insurance product, that you can provide on mortgages. As industry continues to diversify, spurred by a reduced demand for financing in a softening real estate market, I encourage you to keep the best interests and fair treatment of your clients top of mind. Thirdly, Anti-Money Laundering. In 2018, following a report into practices at BC casinos, we saw heightened interest in real estate as a vehicle to launder proceeds of crime. 8

9 Government responded by initiating two reviews: o The Attorney General asked Peter German to review money laundering vulnerabilities, and the scope and scale of activity in the BC real estate market; o The Minister of Finance convened an expert panel to review gaps in the enforcement of existing AML laws and opportunities to strengthen the regulatory framework for real estate and financial services. Reports from Dr German and the Expert Panel are expected in the coming months. While mortgage brokers do not have formal FINTRAC reporting obligations, it is fair to say that industry s role in combatting money laundering will come under increased scrutiny in Today, I would like to highlight that there is nothing preventing industry from making voluntary reports to FINTRAC, when it encounters suspected money laundering activity. We are particularly concerned about syndicate and MIC vulnerabilities. Both the regulator and the public s expectation is that industry report suspected misconduct in all its forms, and the absence of a formal legal requirement does not make for a compelling excuse to avoid reporting. 9

10 I suggest to you, that this is another opportunity for industry to proactively develop standards to strengthen practices in your industry. In summary, the real estate stakes in BC are high and the public expects all industries to conduct themselves according to the highest standards. I encourage industry to navigate change in 2019 and beyond using the following regulatory beacons: Always treat your clients fairly and deliver on your promise to act in your clients best interests; Provide simple, clear, and easy to understand information that equips them to make an informed decision; Exercise extra vigilant when it comes to private lending; Manage your conflicts of interest be transparent with consumers; Keep the best interests and fair treatment of consumers front on mind when diversifying your business; Report suspected money laundering activity to FINTRAC and other appropriate authorities; and Look for opportunities to proactively develop industry standards to strengthen industry integrity and practices. 10

11 REGULATORY PRIORITIES In closing, I wanted to highlight some ongoing regulatory priorities in my office. Before doing so, I wanted to congratulate industry on its embrace of its conflict of interest disclosure obligations. When I last spoke with you in early 2017, there was considerable anxiety about FICOM s conflict of interest disclosure guideline, and the disclosure to consumers of compensation that a broker receives from a lender. My team has conducted a number of brokerage examinations since then, and has communicated to me that by-and-large, consumers are now receiving the disclosure they are required to receive under the Mortgage Brokers Act. I appreciate industry s commitment to greater transparency to consumers you work for the consumer, the consumer pays for your services, and the consumer now knows the price of those services. More broadly, our regulatory priorities would be well familiar to those who have heard me speak before: Brokers, and more importantly lenders, are expected to report misconduct to your regulator o Nothing erodes the public s confidence more than keeping misconduct in the family. 11

12 Say no to application fraud o Providing false and misleading information to lenders puts borrowers at risk of being placed in mortgages they cannot afford, and lenders at risk of making loans they might otherwise have not made. o This benefits no-one, particularly in the current real estate market. Say no to fronting unregistered mortgage broker activity. o Helping unregistered parties access lenders undermines the value of a mortgage broker s services, and places the public at heightened risk of harm. In a series of recent enforcement actions, we identified 44 mortgage applications, supplied to three brokers, by a single unregistered party. o Don t rely on unregistered parties to do your work for you. o Your reputation and livelihood and on the line, and while enabling a deal may seem like a win-win situation at the start of the day, you ll be the one unable to practice in your chosen profession when the day is done. o Fronting for unregistered activity undermines industry s credibility and reputation, places consumers at risk of harm, and cannot be tolerated. 12

13 Exercise extra vigilance when it comes to private lending. CLOSING o I have touched on this theme already. o In the public s mind you don t work for the lenders o and lending your own money can give rise to conflicts of interest that compromise your ability to provide the best advice to your client. o In the current real estate environment, industry must always treat their clients fairly and have the best interests of your client front of mind your borrowers and your investors. o The public, and your regulator, are not forgiving when vulnerable British Columbians are placed at risk. Thank you for the opportunity to speak with you this morning. Preparation for the future has been the theme of this morning s presentations, and I was pleased to offer the regulator s perspectives. FICOM is transitioning to Crown agency to better prepare it to protect consumers in an ever-changing financial services industry. Both FICOM and industry are navigating changes in the real estate market, and I have provided you with some tips for navigating that change. 13

14 Lastly, I was pleased to reinforce some longstanding regulatory priorities that require ongoing industry focus and attention. Thank you again for having me on your agenda, and I wish you well for the remainder of your conference. 14