FSRA tightens disclosure on high-risk syndicated mortgages

The new measures require a clear warning to investors and disclosure of conflicts of interest

FSRA tightens disclosure on high-risk syndicated mortgages

The Financial Services Regulatory Authority of Ontario has embraced tighter disclosure requirements for high-risk syndicated mortgage investments. 

In a statement released on Nov. 12, FSRA announced that it would be implementing a beefed-up supervision approach, as well as adopting a new form to be filled up and submitted by mortgage brokerages dealing with such risky investments. FSRA may suspend or revoke the licence of those who don’t comply with the new policy.

FSRA rationalized these stronger measures as necessary to protect investors. Under the new policy, easier-to-understand language will be used to tell investors about the risks associated with syndicated mortgages.

The regulator approved the revised disclosure requirements following a public consultation, which was open from Aug. 7 to Sept. 6, during which 32 stakeholders submitted comments to the FSRA’s call for feedback. 

In the new approach, FSRA identified three key aspects to determining whether a syndicated mortgage investment is high risk. High-risk investments must make extra disclosures to retail investors.

            First, there must be a clear warning that it is a risky investment. Second, the specific risks must be outlined, and the involvement of any related parties in the transaction must be mentioned. Third, there must be a summary of the fees payable. 

FSRA said it will soon unveil plans dealing with lower-risk syndicated mortgage transactions, in light of suggestions made during the public consultation.

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