FSRA’s webinar on proposed guidance to help principal brokers become more effective at carrying out their duties (May 29, 2024)

0:05

Hello, everyone, and welcome to today's webinar, Proposed Guidance, Mortgage, Brokerage, and Principal Broker Responsibilities to Ensure Compliance and Fair Consumer Outcomes.

0:18

Before we get started, I'd like to go over a few items so that you know how to participate in this event.

0:25

You have the opportunity to submit questions to our presenter today by typing them into the questions box of the control panel in GoToWebinar.

0:33

You can send your questions in at any time during the presentation.

0:37

We are collecting your questions and we'll answer them during the Q&A portion at the end.

0:44

And with that, I would now like to introduce Jenny Hartson, Senior Manager, Mortgage Broker Conduct, FISRA.

0:56

Thank you so much, Karina.

0:58

Have a wonderful webinar up for you guys today.

1:01

Thank you so much for joining us for the proposed guidance webinar, dealing with mortgage brokerage and principal broker responsibilities with the intent to ensure compliance and fair consumer outcomes.

1:14

Today we have Antoinette Lange, head of financial institutions and mortgage brokering conduct who's going to take us through the following agenda which is starting off with our welcome and our land acknowledgement.

1:26

We're going to go through the guidance context. So why is FISRA proposing this guidance?

1:32

We're going to talk about the practical impacts of the guidance. So how would the guidance impact me if I'm a brokerage?

1:40

How is the guidance going to impact me if I'm a principal broker?

1:43

And how would it impact me if I'm a broker or agent?

1:46

We'll talk about some next steps and we will address your questions that are coming through during the Q&A session.

1:52

Please note that if questions are similar, we may rephrase those questions or combine questions so that we can get a single answer to and not ask the same question more than once.

2:05

Before we begin, we'd like to acknowledge the land we are on is the traditional territory of many nations, including the Mississaugas of the Credit, the Anishinaabeg, the Chippewa, the Haudenosaunee and the Wendat peoples and is now home to many diverse First Nations, Inuit and Métis peoples.

2:22

We acknowledge that Toronto is covered by Treaty 13 with the Mississaugas of the Credit and the Williams Treaties signed with multiple Mississaugas and Chippewa bands.

2:31

Without further ado, may I introduce Antoinette Lange into our context for our guidance.

2:38

Antoinette.

2:39

Thank you, Jenny.

2:41

Good morning, everyone.

2:42

Thank you for joining us today.

2:44

So I'm gonna start by giving you a little bit of overview about why we're introducing this guidance and what it is about, and then we're gonna go deeper into what it means for you, depending on your role within your brokerage.

3:00

So if we can go to the next slide.

3:03

So why are we proposing this new guidance?

3:06

I would say there are three main reason for it.

3:10

Number one, if the sector can display strong conduct and compliance culture, it does help to generate good consumer outcomes and in turn is going to increase confidence and trust in this sector.

3:23

As we know with mortgage rates going up or staying high, many consumers are going to be looking to the sector for advice.

3:32

So the more we can raise the standard, the more we can enhance trust within the sector.

3:40

The second thing is we feel that brokerage owners and principal brokers, they are best placed to influence the conduct of the licensed individuals.

3:49

you know your business the best and you are best placed to design what is right for you and for your team in order to influence the conduct that you would like your licensed individuals to display.

4:04

So we wanted to, through this guidance, provide support to brokerage owners and principal bookers, give them suggestions on what they can do to achieve this.

4:15

And lastly, we're seeing varying degrees of effectiveness and understanding of the principal broker's roles.

4:23

We've seen this through a survey that we did a couple of years ago with principal brokers, as well as through dialogues and in interactions with principal brokers and managements at examinations, and as well as when we're dealing with consumer complaints.

4:40

So we would like through this guidance to clarify some of our expectations and make that everybody is understanding what's the role and responsibilities.

4:52

So before we start, we'd like to start with a poll.

4:57

So if I can ask Karina to maybe bring up our first poll, which is what is a strong conduct culture?

5:06

What do you think we mean by that?

5:16

So we're gonna give everyone about 30 seconds to respond and people have already started answering and then we'll take a look at the A couple more seconds.

5:36

All right, let's take a look at those responses.

5:40

Excellent.

5:41

So quite even in terms of the answer.

5:45

But from our perspective, from FISRA perspective, when we talked about strong conduct culture, we really are talking about taking actions and making decisions that will not lead to poor or unfair outcomes for clients.

6:01

Compliance is a minimum.

6:02

That is table stick.

6:04

What we really want to support the sector is that even without specific legislative requirements, brokerages, brokers and agents are able to proactively make decisions and take actions that will lead to fair treatment of consumers.

6:21

So that's what we meant when we talked about strong conduct culture.

6:26

So, let's go ahead and if we go to the next slide, we're going to go briefly about the purpose of the guidance.

6:37

So, three main purposes.

6:40

Number one is to reinforce that both the brokerage and the principal brokers have a shared responsibility and accountability for making sure that the brokerage and all licensed individuals have responsibility for ensuring compliance and also have responsibility for promoting a strong conduct and compliance culture with the goal of preventing poor or unfair outcome for consumers.

7:10

The second objective of the guidance is for us to propose ways that a brokerage can do to make sure that their principal broker can deliver on their compliance obligations, meaning that they can act with integrity, they can demonstrate competence, as well as having the necessary independence, authority, and resources to act.

7:33

Lastly, we are also providing some examples and considerations for principal brokers to help them to take reasonable steps to make sure that there are compliance within the firms and that we are achieving fair outcomes for consumers.

7:52

So, the guidance doesn't create new obligations, but what we're doing through the guidance is to provide more explanations and set out some examples on what brokerages and principal brokers can do to achieve the requirement under the Act.

8:09

If we go to the next slide, I just want to briefly go over the approach that we're taking.

8:15

We are taking a very outcome-focused approach, focusing on what we like the brokerage and brokers to do is essentially making sure that there's fair treatment of consumers and there is no poor or unfair outcomes.

8:29

And we do not make the guidance prescriptive. We want to stay flexible and risk-based.

8:36

What it means is that we give a lot of suggestions and things for you to think about as you go about thinking through how you supervise and ensure compliance.

8:47

We want to keep the so that you can actually adapt it to your own business, really based on the size, complexity, and nature of the products you're dealing with or the clients you're dealing with.

9:01

So we can go to, we have another poll question, want to make sure that everybody is listening.

9:07

So we have a few poll questions throughout.

9:09

So on the next question is, you know, under Embla, who has the responsibility for ensuring their broker and agent compliance with applicable requirements.

9:21

So the brokerage, is it the principal broker or is it both?

9:31

So again, Carina is going to monitor to see if we are getting our responses in.

9:38

I can tell everyone is thinking.

9:42

Okay, a couple more seconds and we'll take a look at the results.

9:47

People are still thinking and responding.

9:49

I want to give everyone a chance.

9:51

All right, here we go.

9:55

Excellent. Again, very even, but the correct answer is both have the responsibility.

10:03

You notice that we put out some of these poll questions because we do recognize there are some maybe lack of understanding or clarity within the industry, so we do specifically design some of these questions in a way that we know we may not be getting an obvious correct answer.

10:21

So both brokerage and principal broker have the responsibility, and in fact the responsibility on a brokerage to ensure compliance of everybody, that would also include the principal brokers, is right within our Act. It's under Section 7, Sub 5 of our Act.

10:44

So we want to make sure that know, principal broker on their own may not be as effective, but if they get the support from the brokerage that appoints them, they would be better placed to carry out their responsibilities.

10:58

Now, we do recognize that in many of you in the sector, you are the brokerage owner, you are also the principal broker.

11:07

So in this case, it's easy, because you can decide what's right for you as principal broker, but for larger firms or firms where the principal brokers are different than the business owners or the decision-maker, this will be very important. So we can move to the next slide.

11:25

We're going to start with the brokerage owner. What does it mean for you with respect to this guidance?

11:33

So as brokerage owner.

11:37

You are the primary decision makers and as I said if you are not the principal broker yourself you also have obligation.

11:48

We have seen a lot of literature in financial sector regulation where tone from the top is very important especially you know back in 2018 after the financial crisis the financial stability board actually specifically put out a piece of that emphasize the importance of tone from the top and they notes that if senior leadership at firms can articulate their vision with respect to conduct, there is actually higher probability that everyone within the firms are going to be thinking about what they're doing and that will actually mitigate risk of misconduct.

12:28

So as a brokerage owner, what we expect you to do is, as I said, set the tone from the top, focusing on the outcome, which is treating consumers fairly.

12:39

You also have an obligation to appoint a principal broker who has the right competence and integrity, and they can actually be doing the job, so you also have an obligation to monitor how they're doing their job. So what does it mean by competence and integrity?

12:57

It can be very vague. We do have some specific examples within our guidance.

13:04

So when it comes to competence, what we meant are, do they have the right qualifications, credentials?

13:10

Do they have the professional experience to take on a compliance role?

13:15

Do they understand the legal obligations, statutory obligations? And are they effective in actually overseeing agents and brokers?

13:25

Integrity. What does it mean?

13:28

From our perspective, integrity means that an individual can act ethically, honestly, and fairly.

13:34

They do interact with others with authenticity and candidness and in a very transparent manner.

13:41

They will put the interests of customers first and they appropriately identify and manage conflicts of interest.

13:50

And then the last thing that we expect a brokerage to do is to make sure that your principal broker has the necessary independence to properly discharge their compliance duties.

14:02

So, you know, what we means is that they have the right authority and status.

14:07

They also have the right resources, which means they can take actions and make decisions with respect to the job, which is ensuring compliance without undue influence from other parts of the business.

14:25

So if we can turn to the next slide, want to talk a bit about what does it mean for principal broker with respect to this guidance.

14:37

From our perspective, principal broker plays a really important role as a gatekeeper for your brokerage and for the sector broadly.

14:46

You are very critical in making sure that good actors within the sector are continue to be providing services to clients and if they're bad actors you are the one that you know be able to make that decision in terms of you know are you bringing them into your brokerage or are you not bringing them into a brokerage and reporting them.

15:12

So from our perspective principal brokers, what it means when we say you have to take reasonable steps to make sure compliance.

15:23

What we mean is that you have to set out policies and procedures, but also take a series of actions so that you are making sure that your firm through the licensed individuals are providing suitable recommendations to the clients and making sure that the clients actually understand those recommendations.

15:47

We set within the guidance, specific things that a principal broker can take from hiring decisions all the way to the day-to-day monitoring and taking corrective actions.

16:03

So we listed out the categories of actions that a principal broker normally would take and I'll go through them one by one.

16:12

So, first of all, with respect to making hiring and retention decisions.

16:19

First of all, as a principal broker, you should be thinking about are the individuals who you plan to bring into the firm, are they suitable? Are they proficient?

16:32

Do they have the right competence to provide mortgage recommendations?

16:37

So we can consider references from previous brokerages or employers, background or social media chat, or even checking regulator websites.

16:46

Many regulator nows do put out notices of any enforcement actions, so that's a good source of information.

16:54

And once you've decided that, okay, I'm going to bring this person on, then the next thing is obviously thinking about what should be the right compensation.

17:07

Most of the sector is paid by commissions, and there's nothing wrong with that.

17:12

But what we would like brokerages and principal brokers to think about is whether your compensation could actually increase the risk of misconduct.

17:25

For example, if there are very, very aggressive sales targets, what does it mean? Now, we wouldn't say that don't set any targets.

17:36

I think for any firms, it It's normal to set targets for staff and for licensed individuals.

17:44

But if there are aggressive targets, have you put in place other mechanisms to prevent the licensed individuals to be overly focused in generating that commission without thinking about, you know, are they giving the right recommendation to client?

18:05

So, you know, some examples that we know some brokerages do is that they won't pay brokers until they've reviewed the files to make sure that it's in order.

18:17

So then after you bring them on, you've arranged the compensation structure, obviously there is the onboarding as well as continuously training your individuals.

18:30

So you know, think about are there important information that you want to reinforce on regular basis.

18:36

And when there are changes to the business, changes to the environment, or when you're introducing new products on your shelf, those will be good time when you also provide training so that your group of brokers and agents are always up to date in terms of what they need to be aware of.

18:56

Then supervision and monitoring.

18:58

Obviously, this is a core responsibility of principal brokers, what we wanted everyone to think about is this is not a checklist exercise.

19:09

We do notice that a lot of brokerages with their principal brokers and compliance teams, they are checking whether a piece of document is in a file, but they don't go and look at whether the content of that document is correct and whether the mortgage recommendation is suitable.

19:28

and the other thing that we suggest you may want to think about is, you know, do you regularly review complaints that you get from consumers?

19:38

That is actually a very good source of information.

19:42

Are these complaints centered around common issues that may be an indication that maybe there is widespread misunderstanding about a particular matter, so that can actually help you design your training program?

19:57

Or is the complaint centered around a few individuals?

20:01

No, if that's case, that's also useful information for you that target your supervision and your training towards those individuals that seems to be delivering products and services that cause a lot of dissatisfaction from your clients.

20:18

Now, if you have teams and you expect your team leads to take some supervision responsibilities, then think about how do you make sure that they understand your expectations and are they properly set up to do it and do you have a regular process to make sure that they are in fact doing what you've asked them to do.

20:42

One of the things that we know is sometimes people don't have as much time in doing the actual compliance, so if that the case, think about how much compliance responsibilities you want to delegate over to them.

20:59

Last but not least is taking actions when you see things are not going well and actions could be just providing additional training or maybe you want to do more frequent monitoring of the files and the recommendations of some of your agents.

21:18

Sometimes you may want to update your process, internal policies and procedures and of course in you know a worst-case scenario you may have to terminate someone because they just are not acting in the way that you expect to.

21:34

So in our guidance we provide more examples for your reference. Keeping in mind there is no one-size-fits-all.

21:42

What we think the best way forward is for you to think about you know based on your brokerage based on the experience and the seniority of your brokers and agents, as well as your clientele and the products, then you can design your program accordingly.

21:59

If you are dealing with a lot of private mortgages, your clientele tends to be less sophisticated, maybe less educated.

22:08

That means they are likely not able to take care of themselves and ask the questions.

22:14

that means more responsibilities will be shifted towards yourself and your team.

22:19

So that's something to think about.

22:22

Now, let's see if how good I am in sharing with you our expectation. Let's bring up the third poll. This is a test on me, not a test on you.

22:33

So third question is, in order for you to adequately supervise a team, as a principal broker, Do you need to review every single mortgage file and every single mortgage recommendation?

22:58

Karina, how are we doing with the poll?

23:02

People are starting to respond.

23:06

Excellent.

23:09

So we're going to give everyone maybe 10 more seconds here because they're coming in fast and furious.

23:18

Excellent.

23:20

Okay.

23:21

I think we can take a look now.

23:26

So great.

23:27

Yes.

23:27

The correct answer is no, you don't need to look at everything.

23:33

Now, what do you need to do is to make sure that you have a thoughtful approach to why you not review every file.

23:45

We're completely okay that everybody takes a risk-based approach, so for example, you may want to check everything for less experienced agents.

23:53

And as they gain experience, you may need to check their files less.

23:59

You may also check more if it is a new and more complex type of mortgages, that's totally okay.

24:08

What we suggest you do is write down your approach and be consistent about it.

24:14

Because if you can consistently demonstrate that's the process you go through and it's reasonable, then you're doing your job well.

24:24

So we have one more polling question.

24:27

If we can bring that up, poll question number four, can you delegate your compliance responsibilities to others within the firm if you are a principal broker?

24:44

All right, giving everyone another 30 seconds to respond.

25:01

Few more seconds.

25:06

All right. I think we can take a look at the... Oh, they're still coming in. All right.

25:16

Let's take a look at the responses.

25:18

Great. That is correct. The correct answer is yes.

25:24

You can delegate your responsibilities to others.

25:29

What we'd like you to consider is think about do they have the ability and capacity to carry out those compliance responsibilities, and that you, on a regular basis, monitor how effective they are in doing their job.

25:46

Ultimately, you are accountable for ensuring compliance, but it is absolutely okay for you to delegate some of those to others.

25:57

Okay, we can go back to our rest of the presentation. So now this is for brokers and agents.

26:08

How does this guidance impact you?

26:12

So brokers and agents, you are authorized by your brokerage and your principal broker to deal in mortgages on their behalf, right?

26:21

So you are expected to conduct yourselves in a way that align with regulatory requirements, keeping in mind fair treatment of consumers and also keeping in mind that of their interests, right? That's very important.

26:39

So what it means is that we do expect you to follow the direction and the internal processes of your brokerage, regardless of whether you're employed as an employee or an independent contractor.

26:51

ultimately, you know, your brokerage sponsor you, so you do have to work within their expectation as well.

27:00

Now, other things that we are also expecting is if you see misconduct or breaches of requirements, report those to your brokerage and make sure that they are aware and they can deal with it and you can also report those to FSRA as well.

27:18

keeping in mind that your principal broker and other compliance staff within the brokerage is there to really support you, to make sure that you can deliver suitable market recommendations and your clients understand those recommendations.

27:33

This not just help reduce the risk of consumer complaints, but also reduce the risk of ENO claims and even loss of reputation.

27:41

And that's harmed everybody in the sector.

27:45

And also I know sometimes questions are asked by brokers and agents is, you know, why do we need to follow these policies and procedures?

27:54

It's create an additional work and maybe delays.

27:58

Our response has always been that, you know, they are there to really guide, especially some of the agents and brokers who are newer.

28:07

So they are there for a reason.

28:11

So, you know, brokerages are required to put those in place.

28:14

brokers and agents are required to follow them.

28:20

So that brings us to kind of the almost the end of our presentation.

28:26

And if we can go to the next slide, which is, you know, what do you do now? So our guidance is still in draft form.

28:37

It's out for publication until the end of June. Please take a look at our guidance. Please give us feedback.

28:46

We are looking for both positive or constructive feedback.

28:52

Obviously, we know that if there are things that don't quite work well, especially if they're not feasible for the sector, we definitely want to hear about them.

29:01

But if there are things that are really good and you want to make sure that they stay in the final version of the guidance, please let know as well.

29:09

And then for brokerage owners and management as well as principal brokers, please stop thinking about how your own processes and operations are aligning with the guidance so that when the guidance becomes finalized later in the year, you have some idea of what you need to do to better align it.

29:31

Keeping in mind that ultimately, I think we all want the thing, regulators as well as the sector, is that we want our consumers to be confident when they're dealing with mortgage brokers, because they are getting good advice and they are finding the mortgage to buy the home or finding that mortgage investment to support their investment needs and that they're understanding what they're getting into.

29:57

So this slide deck will be available on our website that you can refer back to, but in time, what I'd like to do is to just open up for audience questions.

30:07

Maybe I'll turn it over to Jenny, our moderator, to see if what questions have come in. Thank you, Antoinette.

30:16

That's really great information. Thank you for taking us through the guidance.

30:21

We have quite a few questions that have come in.

30:24

Before I pose the first question on behalf of some of our viewers, I'd just like to remind everyone that, as Antoinette said, a copy of this presentation, as well as a recording of presentation a transcript and questions and answers that we are sorry questions that were asked and our answers will be posted onto our website by the end of June so you'll still have an opportunity to come back and take a look and see if a question was answered or can share with others at your firms if someone else was not able to attend.

30:56

So let's take a look here at a question here asking a little bit about how this guidance applies back at FISRA.

31:09

So we've got guidance here that says our expectations of principal brokers, brokerages, and brokers and agents.

31:17

How does FISRA intend to supervise and assess against this guidance?

31:24

So there are a few things that we're doing.

31:29

Examination is a tool that we often use, so we will be going out to do examinations, speaking with the principal broker, and if it's a large brokerage, we'll be speaking to management.

31:42

So it's really taking a look at what is the process and as well as how effective they are.

31:50

So the way for us to assess effectiveness is often through file reviews.

31:55

If we are seeing files that demonstrate, you know, a suitable mortgage recommendations are provided and they're good information that were being provided to clients, that's an indication that you're probably doing a good job in supervising.

32:10

We're also going to look at your documentation of your supervision.

32:16

Many people, you know, have, you know, they do keep records of supervision, for example, maybe even initialing some of the documents they're looking at.

32:26

So those are indicator for us that you're in fact supervising.

32:30

That's why you're not getting, you're actually giving good recommendation.

32:37

One of the things that do inform our supervision who we select for examination is often does a firm have received a relatively higher proportion of consumer complaints?

32:50

Or does a firm have individuals that might have in the past regulators or other professional bodies have taken enforcement action?

33:04

So those doesn't indicate that the firm is not doing a good job, but what it means is that there are higher proportion of licensed individuals working there that may need more supervision.

33:18

So those would be something that we look at and when we select firms for examination.

33:23

Now, in those cases, if you can demonstrate that you are supervising, you are reviewing files, you have a consistent systematic process to make sure they understand your internal process, you have regular training, and for those individuals who may be the subject of more complaints, your supervision are more intense, then for us, those are all good indicators that you are taking reasonable steps to supervise.

33:57

That's great.

33:57

Thank you, Antoinette.

33:58

That's very informative.

33:59

And I think if I can pick something out of there, I heard you say the word demonstrate.

34:04

And I've seen that a few times in some recent guidance from FISRA.

34:08

So when we're saying demonstrate, what might that look like?

34:13

How do I demonstrate that I've been supervising?

34:18

That actually is a great question.

34:21

I think there are really only two things that you need to do.

34:24

Number one, some quick notes in terms of what's your approach to supervision.

34:29

You may simply say that, you know, I'm a small brokerage, five firms, I just started, all of my agents are really junior, I'm the most senior, and the first 20 deals, I'm gonna sign up on every deal.

34:42

And then afterwards, I'm just going to spot check.

34:45

Write it down what's your approach.

34:47

And then when you are actually doing your supervision, for example, you're signing off deals, just keep a record of your signature, right?

34:55

Like it's very simple.

34:57

So that when we came in an audit, or maybe even an E&O insurer, if there's a claim and they may ask for information, you can actually pull that document out and say, Hey, here's my approach, and you're being very consistent, and you can see record that, oh, I did initial that, and indicate I've signed off on it before it gets submitted into the system.

35:23

So those are some of the things that you can really do to demonstrate and keep track of how you supervise.

35:32

Great, so in summary, I think I'm hearing, say what you're gonna do, do it, and then record how you did it. Is that fair? Yeah.

35:42

We've got a good question here that I know is actually this is a combination from a couple of different questions that have come in so I am paraphrasing.

35:51

Essentially the question is around are there going to be legal changes to put this into effect or is this presentation just promoting awareness?

36:03

So, as I said earlier, there are no legal changes.

36:07

The legal obligation for a brokerage to ensure their licensed individuals, including the principal broker, are meeting the requirements is already in our Act.

36:21

And the requirement for principal brokers to take reasonable steps to ensure compliance is also in a regulation of the act.

36:30

So there is no new legal obligation.

36:33

What we're doing through the guidance is to provide more clarification, as well as examples of what are some of the things that brokerages and principal brokers can do.

36:44

That's great, thank you so much.

36:46

Moving here to a different question.

36:52

A lot of questions here about how FISRA is going to ensure.

36:56

So, I think I'm following the guidance, I've put my practice in place, I've said what I'm going to do, I've been doing it, I've been recording it, then FISRA comes in.

37:07

How is FISRA going to ensure that a principal broker is performing these duties, and also that they have the right education and training and competence to be doing these duties?

37:19

Okay, so I'm going to take it as a two-part question.

37:22

The first part is, you know, how do we assess if the principal broker is in fact, effectively supervising?

37:31

I'm going to, I like Jenny's summary, write down what you're going to do, and then do it, and then show records that you're doing it. As I said, sometimes it is as simple as an initial and a date.

37:45

And other times, I know some of you may have a system that allows you to keep track of somebody has approved this deal or have reviewed this deal before it goes through.

38:00

Or if you have very experienced brokers and agents, you don't need to review their deals ahead of time, you may spot check.

38:07

And again, it's the same thing.

38:09

If you spot check a file, you can just keep a record on this date.

38:12

I check, you know, I check 10 files and they're from these 10 agents and I sign off and and they are, they are in fact, you know, making suitable recommendation and the disclosures are for clients are properly completed and provided.

38:28

Right. So, so that's kind of how we will assess you a principal broker's performance of their compliance duties.

38:39

Second question was about how do we make sure that the principal broker has that right integrity and professional competence?

38:48

As you know, principal broker, just like any brokers, they need to go through renewals or new applications.

38:56

So we will do our check from a, from do they have the right credential?

39:02

Do they have the experience?

39:03

and have they had previous regulatory actions taken against them.

39:10

So all those steps that we're doing as a brokerage before you appoint somebody, those are the same steps that we expect you to take as well.

39:22

Really think about can this person be able to do the job?

39:27

Sometimes an individual could have, you know, right, they want to do the right thing, but they may not have the full competence.

39:38

If that's the case, you still want to take them on.

39:40

Are you supporting them with training?

39:42

Are you giving them the resources that you need so they can get up to speed and carrying out their functions?

39:49

And sometimes you bring in somebody very experienced in that case, equally fine.

39:54

Then there should be a process so that you can on a regular basis assess if they're doing a job.

40:00

A good indicator of brokerages, a good indicator for you to assess if your principal brokers are doing a job.

40:09

Consumer's feedback is always a good information.

40:13

Like complaints, if your brokerage has a lot of positive feedback, lot of clients coming back, that is likely a good indicator that your firm is doing the right thing.

40:23

Now, if it's the other case, that may be an indicator that not only are your licensed individuals may not be carrying out their providing services in the right way, but is the principal brokers actually helping them to get to a better service level. So those are indicators that are useful. That's great.

40:47

So it's sounding to me a little bit like FISRA assesses the competence and professionalism of a principal broker, the same way brokerage management, directors, officers, partners, would be using same criteria essentially to hire the right PV.

41:04

So some consistency there.

41:07

Same process, criteria will be slightly different.

41:09

We have higher expectations and you should as well for somebody who has that important role as a principal broker.

41:18

Excellent. I have another question here. And it's from a principal broker who says, I'm only sorry, I've got an acronym here. So I'm only a director officer slash partner of my brokerage, because I have to be in order to be the principal broker.

41:42

Sometimes the owners of the mortgage brokerage are not concerned with my duties as principal broker or my decisions because it doesn't impact them.

41:51

How do I reconcile that with this guidance?

41:56

Yeah, so this was exactly why our guidance emphasize that the broker create themselves also have that obligation.

42:07

So I think the first thing that I would suggest you do is to bring that to the attention of the other directors, officers and partners of the firm and let them know that they also have an obligation.

42:22

The brokerage has that obligation.

42:24

Now, and if they are still not supportive, then I think you can decide whether you're still able to do your job.

42:34

And if you can, great.

42:37

If you feel that this is making it very challenging or you're not giving the ability to make compliance decisions, then you may have to reconsider your employment.

42:47

And of course, other things that you can do is, we do have a whistleblower program that allow individuals to report misconduct to us on an anonymized basis.

43:01

So that's something that you can consider as well.

43:06

That's great. Thank you. And we will get a link to the whistleblower program. We'll have it put into the chat.

43:15

In the meantime, if you do go to the FISRA website, it's always at the top next to the complaints area.

43:22

There's a whistleblower area there if you have something that you need to report.

43:25

We have a question here from another principal broker, and it's a very practical challenge that is being highlighted here.

43:33

So as a principal broker, how can I be responsible if agents or brokers are purposely doing things outside of the brokerage?

43:42

And I really only have knowledge of what they're doing through my brokerage.

43:47

So how does my responsibility get assessed by FISRA there if these folks are clearly doing something in order to hide it?

43:59

So that's a great question.

44:01

And in fact, this challenge is not limited to the mortgage brokering sector.

44:05

I think many employers have expectations on their staff on what they can and cannot do.

44:12

So I think the first thing is, you know, be very clear about your expectations.

44:19

Like I sponsor you, I expect you and I require you to put through all your transactions into the brokerage.

44:30

you are not allowed to carry out mortgage brokering activities outside of the brokerage. Be very clear about it.

44:40

And the other things that you can do is to reinforce that, right, through annual training or maybe some from even due attestation that their licensed individuals has to attest every so often.

44:55

So those are useful tools because you are correct.

45:00

If somebody deliberately hide things from you, it is very difficult to check, to identify.

45:08

However, if you have a process that reminds them and have explicit prohibition and there is a requirement for them to agree and attest to it, then at least you are putting some steps in place to make sure that they are aware of your expectation and you are expecting them to meet the requirements.

45:33

Interesting, so by setting out the fact that my expectation at the brokerages is that you won't do the following things or by working here, you're agreeing to these limitations or these processes for let's say outside business or other activities, with that, I guess I'm seeing that, I think I'm understanding that to mean that those are some of my reasonable steps to ensure that it's not happening.

45:59

So if I don't address it at all and I don't mention that it's not allowed, I haven't taken any steps to prevent it.

46:06

Whereas if I even just make the rule and make sure people are aware of it and agree to it, then it's one of a set of reasonable steps I could show.

46:16

That's great.

46:17

Thank you.

46:17

That's very helpful.

46:18

Thank you.

46:21

We have a question here And it highlights a couple of key words that I think we've heard throughout this presentation and throughout some other guidance that has come out in language from FISRA because we're hearing a lot lately about three things, conduct culture, compliance culture, and tone from the top, which you did address earlier. The question is more about how can I establish that?

46:50

How do I make sure it's being understood and how does FISRA assess it?

46:56

So it's, sorry, it's three questions and built into one.

47:01

So I always said, this is almost like a leadership question, right?

47:08

How do you establish that?

47:12

I think first of all is articulating it, articulating it very clearly, what's your expectation is.

47:20

So, when we talk about strong conduct culture, what we mean is you proactively take actions and make decisions that will not lead to unfair outcome for consumers.

47:36

So, if you are being very explicit and articulate, this is our expectations.

47:41

Everyone, you got to treat your clients fairly.

47:45

That's number one thing you can do.

47:47

it is and then compliance culture is more about just compliance with legal requirements.

47:55

So from our perspective, that's minimum, right?

47:57

Everybody who's doing business in a regulated sector, that's something that you're expected to do, you're expected to meet requirements.

48:06

So that again is something that you should articulate and regularly reinforce with your licensed individuals.

48:15

And then the last thing in terms of how do you set the tone? I would say the walk the talk, right? Walk the talk.

48:22

That's a that's always the easiest way to show that you are dealing with clients that way.

48:31

If if you don't have a, if you're not, you don't have your own client base, you're just in the office.

48:37

But, you know, how do you, how do you promote your business? Are those being fair?

48:43

What are some of the services that are being done at head office? Maybe, you know, you do take complaints and inquiries centrally through the head office.

48:56

How are you treating your consumers that way?

48:58

So I think that's how you set the tone from the top. And it's explain, reinforce, and then walk the talk.

49:07

That's great. Thank you. As I was taking some notes as you were speaking, and what came out to me really was when we're talking about setting the tone, it's, it seems to me and it's the vibe, so to speak, it's the cultural norms of the brokerage.

49:24

So I really liked that talk that, or sorry, walk the talk.

49:28

And it seems to me like compliance and then conduct.

49:32

It's like, do things right, that's compliance.

49:38

And whereas conduct is do the right things, so to speak.

49:42

So I won't take credit for that.

49:44

I've seen it written before.

49:46

It just, it seems like what we're trying to highlight by saying both conduct and compliance it comes back to what you said at the beginning there about, you know, compliance is table stakes, it's the basics, you absolutely must.

49:59

The question is, are you taking the steps to make sure that you're reaching the outcome, which, as you have mentioned, really focuses on treating consumers fairly? Take a look to see what other questions we have here.

50:18

Yes, we have a good question here about consequences.

50:22

So if FISRA were to encounter a principal broker and find that they have not been acting with honesty or with integrity, what are some of the consequences that that broker might face?

50:37

So the consequence could be, you know, enforcement type actions like sanctions, monetary penalty, and the principal broker, their license may be impacted.

50:51

They may be suspended or, you know, in the worst case, they may be prohibited from taking on the principal broker role in the future.

51:03

And that's some of the consequences that could take place.

51:09

Excellent, so we've been able to get through the questions that have come in.

51:13

If your question was not specifically answered, as in you didn't hear your specific wording.

51:19

When we post, you think about whether it is answered by some of the other rephrased or consolidated questions.

51:26

But I'd like to take the opportunity Antoinette, not only to thank you, but to give you an opportunity if there's a summary parting comment that you would share.

51:33

What's the most important thing you want people to take away today?

51:37

I think the most important thing that we always said is we all have a role.

51:41

Brokerages, principal brokers, regulator, and the licensed brokers and agents keep in mind ultimately we want you to treat consumers fairly in your delivering of services and products.

51:54

So when you keep that in mind then when you are designing your own internal process, when you're bringing in new brokers and agents and as you're supervising that becomes your guidepost and if we can all work towards that then I think we're going to all be doing our part to to set the high standards for the sector as well as consumer trust in the sector.

52:20

Excellent.

52:21

Thank you so much for taking the time, Antoinette, today to provide us with this information.

52:26

Thank you to everyone who has attended, taking the time to be here with us today to learn more about the guidance and to ask your questions.

52:34

We hope you found this session helpful.

52:37

The links to the consultation for the principal broker guidance that we are talking about today are available in the chat section and we also will have the links live into the posting once we get the questions and the recording up online.

52:57

As always, you can also contact FISRA directly.

52:59

If you have any questions, contact centre at fsrao.ca. Thank you so much, Antoinette. Thank you participants.

53:07

Have a wonderful rest of the day.

53:09

Thank you.

1. Where can I find the proposed guidance, and when is the consultation deadline?

   The proposed guidance can be found at the link below. The consultation period closes June 28, 2024

   • Proposed Guidance: Mortgage Brokerage and Principal Broker responsibilities to ensure compliance and fair consumer outcomes

2. Are there going to be any legal changes or is this presentation to promote awareness?

   There are no legal changes; regulations and requirements remain the same. However, with the dissemination and publication of this guidance, we expect that principal brokers will better understand and better implement the standing requirements and expectations of a positive and strong conduct and compliance culture within the brokerage.

   This webinar also aims at providing added clarity on the intent and purpose of the guidance to inform the ongoing public consultation on the proposed guidance. Feedback on this guidance will be accepted until June 28, 2024.

1. Can a principal broker delegate some of their compliance duties and responsibilities to others? Do they have to be licensed as brokers?

   Overall brokerage compliance and supervision should be scaled appropriate to the size of the brokerage, the business model, and the primary types of products or consumers they typically serve. Principal brokers can delegate compliance duties and activities to ensure that each mortgage broker and agent authorized by the brokerage is appropriately supervised and conducting their mortgage business in a way that promotes the fair treatment of consumers. While duties, responsibilities and/or activities can be delegated, the principal broker is still ultimately accountable for all conduct and compliance.

   If you plan to delegate compliance or supervisory responsibilities to others, consider the individual’s capability (e.g., education, experience, licensing history, past performance a reliability, etc.). It may be a good idea to ensure that the delegated responsibilities are clearly defined and performed properly, and those taking them on are held accountable to the outcome.

2. My mortgage brokerage’s owners/managers only made me a director/officer/partner of the mortgage brokerage because it is a requirement for serving as principal broker. Sometimes the owners of the mortgage brokerage are not concerned with my duties as principal broker because it does not impact them.

   The owners/managers of a mortgage brokerage also have requirement on them under MBLAA to ensure compliance of its brokers and agents (under s. 7(5) of the Act). In other words, the brokerage has a legal obligation to ensure that you, as the principal broker, can effectively deliver your obligations under MBLAA, which is to ensure compliance. If they are found not meeting this requirement they can face enforcement actions.

3. What recourse do I have as a principal broker if I do not get the support needed to appropriately carry out my role?

   If brokerage ownership/management are not providing adequate independence, authority and resources, the principal broker should keep notes and records of their attempts to identify and seek remedies for these inadequacies.

   • If there is continued reluctance to support the principal broker in their duties, the principal broker may need to reconsider their continued employment with that mortgage brokerage.

   • The principal broker should consider reporting this to FSRA, and where evidenced, this may impact the mortgage brokerage’s suitability to remain licensed with these owners/managers.

     • You can also bring the information to FSRA via the whistle-blower program. The Whistle-blower program helps with ensuring the confidentiality of your identity if you wish to remain anonymous.

4. How can a principal broker be held responsible if a broker/agent does something outside of brokerage/brokerage’s knowledge?

   The principal broker is responsible for setting out the conduct and compliance framework for the brokerage. This includes preparing policies and procedures about what mortgage brokers/agents are expected to do, and what they are not permitted to do while authorized under the brokerage. If you address key expectations regarding outside business activities within your policies and procedures, you are less likely to discover non-permitted activities after-the-fact.

   If brokers/agents are intentionally concealing outside business activities, particularly other concurrent business in the mortgage industry, this may be an indication that the individual is unsuitable to be licensed.

1. How can ownership/management and/or the principal broker establish and monitor the conduct and compliance culture at the brokerage?

   The proposed guidance provides some helpful considerations for establishing and monitoring conduct and compliance culture at a brokerage. These proposed considerations focus on:

   You may also find the questions and answers from the mortgage brokering panel discussion “What Does Driving a Positive Conduct Culture Look Like? – Scaling the Approach for Brokerages of Varying Sizes” useful.

   • Gatekeeping: The principal broker and mortgage brokerage should take reasonable steps to ensure, when hiring, that their licensed staff have the appropriate expertise and proficiency to deliver suitable products and services to customers.
   • Training: Providing appropriate onboarding as well as periodic training to licensed individuals to ensure ongoing level of competence and proficiency in delivering suitable mortgage products and services to consumers.
   • Oversight: The principal broker should adequately supervise licensed individuals in their day-to-day activities to ensure ongoing proficiency, professionalism and conduct.

2. How can brokerage ownership/management ensure that the principal broker they hire has the education and training required to discharge their duties?

   The proposed guidance provides several relevant factors that may be considered when assessing a principal broker’s professional competence, including but not limited to an assessment of the following during the hiring process:

   Brokerage ownership/management are encouraged to perform periodic performance assessments of principal brokers to ensure their education and expertise continues to be sufficient and relevant.

   • qualifications and credentials
   • professional experience
   • comprehension of relevant statutory requirements
   • references and background checks
   • effectiveness in overseeing agents and brokers – if their agents and brokers are subject to disproportionately high numbers of consumer complaints, justified E&O claims and regulatory breaches, then the principal broker may not be discharging their duties appropriately

3. How can brokerage ownership/management assess if a principal broker lacks integrity and honesty

   Brokerage ownership/management must ensure that the appointed principal broker is acting in good faith in their role and ensuring that the mortgage brokerage and its licensed staff are treating customers fairly and are complying with the MBLAA and the brokerage’s own policies and procedures.

   As indicated in the proposed guidance, some of the relevant considerations when assessing whether a principal broker acts or can act with integrity include whether the principal broker:

   • acts ethically, honestly, and fairly
   • interacts with others in an authentic, candid, and transparent manner
   • puts the interests of customers first and appropriately manages conflicts of interest
   • provides resources and training to its licensed staff

   Another element that can be reviewed is the number of complaints received by the mortgage brokerage, its principal broker and staff, the nature of these complaints and how/if these complaints have been resolved.

1. How does FSRA intend to supervise against this guidance?

   This proposed guidance would not introduce new requirements, nor would it impose new duties on principal brokers and mortgage brokerages. The Guidance outlines FSRA’s expectations regarding the business practices that are critical to supporting principal brokers and mortgage brokerages in promoting a strong compliance culture, protecting consumers, and meeting their regulatory requirements. FSRA will continue to regulate the industry through consistent engagement with licensees. This will include:

   • examinations of your internal controls, procedures and transactions to assess how effective you are in achieving compliance and the outcome of suitable mortgage recommendations by your brokers/agents
   • assessing brokerage practices against this proposed guidance, specifically sections 1 and 2
   • continuing our discussions with brokerages and principal brokers to bring awareness to best practices that align with this guidance, and provide support by clarifying expectations

2. How is professionalism measured?

   Professionalism can be observed through a brokerage’s norms, attitudes, and behaviours with respect to treatment of and outcomes for their clients. Examples may include clients receiving suitable product recommendations, appropriate disclosure, timely response to inquiries, transparent communication, etc.

3. How is FSRA going to ensure that principal brokers have the education and training to perform these duties, and how will FSRA monitor a brokerage’s compliance and conduct culture?

   In addition to the proposed Guidance’s sections 1.1 through 1.3, principal brokers will still be required to meet all FSRA licensing, suitability, and education requirements, which include primary and continuing education, and ongoing suitability checks at licence application and renewal. In addition to the steps outlined in the proposed Guidance’s sections 2.1 through 2.3, FSRA will monitor a brokerage’s compliance with these requirements through engagement with licensees, e.g., through regular correspondence, through examinations and reviews, and through our complaints processes.

   FSRA is also planning to start hosting periodic principal broker symposiums, to further the exchange with the sector and offer an additional forum for direct dialogue with us.

4. How does FSRA know if a principal broker lacks integrity and honesty? And what can be some of the consequences for a principal broker if they are found to not be honest or not have integrity?

   FSRA determines if the principal broker and the mortgage brokerage act ethically, honestly and fairly, through examinations, consumer complaints, review of prior compliance history, and through background checks during initial appointment and licence renewal (e.g., news media and other legal and regulatory websites).

   If FSRA becomes aware of situations where a principal broker does not act ethically and honestly, FSRA will review and investigate such instances and, where appropriate, may use enforcement actions such as suspension, administrative monetary penalty, or licence conditions or revocation, to address the issues in proportion to the degree of noncompliance and its real or potential impact on consumers.