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Mortgage Brokerage, Principal Broker, and Endorsements Compliance Requirements

Brokerages must ensure they comply with all aspects of the Mortgage Brokers Act legislation. The brokerage is also responsible to ensure that every associate and broker acting on its behalf also complies with the legislation.

Brokerages, and the associates and brokers, are required to act in the best interests of the borrower. The only exception to this requirement is when a private investor is involved. Brokerages are prohibited from acting for both the private investor and the borrower in the same transaction.

The Mortgage Broker Act and Rule MB-001 Mortgage Brokers Licensing and Ongoing Obligations requires the brokerage to have reasonably-designed policies and procedures in place that ensure compliance with all legislative requirements. These policies and procedures must be periodically reviewed by the brokerage’s principal broker, who is required to make written submissions to the brokerage if the policies and procedures are not adequate.

Only brokerages with endorsements are allowed to receive any money, other than that relating clearly as a payment for fees or other remuneration earned by the brokerage. Brokerages with endorsements have additional compliance and reporting obligations they need to meet.

Prohibited activities

The Mortgage Brokers Act and rules prohibit brokerages from:

  • trading or dealing in mortgages without a licence
  • authorizing or permitting an unlicensed broker or associate to act on behalf of the brokerage
  • authorizing or permitting a mortgage broker or a mortgage associate to act on the mortgage brokerage’s behalf if that mortgage broker or mortgage associate has another mortgage brokerage named on his or her licence,
  • using an unauthorized name. Licence holders can use only the name set out on their licence
  • charging, collecting or attempting to collect a fee or other remuneration from a borrower in relation to a mortgage obtained by an individual for primarily personal, family or household purposes until:
    • A.    an investor has provided a written confirmation to fund a mortgage to the borrower
    • B.    a mortgage agreement has been entered into
    • C.    the mortgage contemplated in the mortgage agreement has been funded and secured by a mortgage as set out in the written confirmation
  • receiving funds from investors/lenders in advance. A brokerage cannot receive funds from an investor unless an existing mortgage is available, or receive funds from a lender unless a mortgage application has been made on a specific property
  • making any false, misleading or deceptive statement in advertising
  • indicating in any statement or representation that the solvency or financial standing of the brokerage is vouched for by the Commission
  • offering guarantees to lenders/investors. Brokerages cannot offer a guarantee to a lender/investor regarding a mortgage loan or mortgage investment
  • engaging in tied selling. Borrowers/lenders/investors cannot be required to obtain a product or service as a condition for obtaining another product or service from the brokerage
  • acting for a borrower/lender/investor if there is reason to believe a mortgage is unlawful

Principal broker

The legislation requires that every brokerage have one licensed broker designated to be the principal broker. The principal broker must be a director, officer, partner or sole proprietor of the brokerage.

As the principal broker, there are a number of responsibilities to be carried out in addition to the responsibilities applicable to all brokers and associates, including:

  • acting as the Chief Compliance Officer for the brokerage
  • taking reasonable steps to ensure that the brokerage and each associate and broker follow all of the requirements of the Act and the rules
  • following up to ensure any non-compliance is addressed
  • reviewing the brokerage’s policies and procedures (see more below) to determine whether they are designed to ensure that the brokerage and every associate and broker comply with the Act and Rules
  • reviewing the brokerage’s policies and procedures to determine they are designed to ensure every associate and broker is adequately supervised
  • issuing written recommendations to the brokerage where the brokerage’s policies and procedures do not meet the legislative requirements
  • assigning a broker to act as a supervisor for each associate
  • review every trust account reconciliation record prepared pursuant to section 47 of Rule MB-001 Mortgage Brokers Licensing and Ongoing Obligations and certify that it is accurate by signing and dating it.

Policies and procedures

Each brokerage must establish and implement policies and procedures to supervise and ensure the brokerage and its associates and brokers comply with the law. This would include policies and procedures on:

  • verifying the identity of borrowers, lenders and investors
  • determining the suitability of a mortgage or mortgage investment for a borrower, or private investor.
  • identifying material risks of an investment in a mortgage for a private investor and their disclosure to the private investor as required by the rule
  • identifying and disclosing potential conflicts of interest
  • receiving incentives other than money from other persons and entities
  • providing incentives other than money to associates and brokers of other brokerages

Complaint handling

Each brokerage must establish a process and develop procedure(s) for resolving complaints from the public. The process should include:

  • designating at least one individual who is an employee of the mortgage brokerage or who is otherwise authorized to act on its behalf to receive and attempt to resolve complaints from the public
  • documenting all complaints received from the public
  • responding to all complaints received from the public in a fair and effective manner
  • keeping a record of all written complaints received from the public and all written responses.

Errors and omissions insurance

Every brokerage must maintain errors and omissions insurance, which includes extended coverage for loss from fraudulent acts. The insurance must cover a minimum of $500,000 for any one occurrence and $1 million for all occurrences during a 365-day period. A brokerage must notify the Director immediately if errors and omissions insurance is cancelled or not renewed or if coverage falls below the minimum mandated.

Annual filing requirements

The following is a summary of the annual filing requirements to be made on or before April 1 of each year (late filings may result in a late fee):

  • pay the annual fee
  • submit an annual trust declaration that the brokerage did not receive any money, except that relating to fees or remuneration for the previous fiscal year
  • provide evidence that approved E&O insurance is maintained
  • submit an annual return for the year ended December 31 of the prior year

Immediate notification requirements

A brokerage must notify the Director immediately if:

  • an associate or broker is not suitable for licensing
  • the required errors and omissions insurance may not be in force or effect
  • there is a change in a mailing address, email address, address for service, telephone number or fax number

Change in circumstances notification requirements

In addition to the other annual filing and immediate notification requirements, brokerages need to comply with the ongoing seven-day notification requirements to the Director, including:

  • a change in the location of the principal place of business, or the opening or closing of any other office that is open to the public
  • a change in one or more director(s), officer(s), partner(s) or the principal broker
  • changes in authority to engage in brokerage activities in another jurisdiction
  • criminal charges
  • civil actions
  • bankruptcy, receivership, or winding-up proceedings
  • if an associate or broker is no longer authorized to act on behalf of the brokerage
  • the transfer of records to a different business location.

These above lists are not exhaustive. There are other notification requirements outlined in the legislation. The brokerage must ensure it is familiar with these requirements, and provide notifications within the required timeframe.

Record keeping

Section 44 of MB-001 sets out the record keeping requirements of brokerages. Licence holders are required to keep complete and accurate records of their business activities in New Brunswick. Documentation supporting all financial affairs and client transactions must be maintained.

Record storage

Brokerages must take appropriate precaution to maintain the integrity, completeness and accuracy of records:

  • in a location approved by the Director
  • for a minimum of seven years after the date of the transaction

Electronic records

Records can be stored electronically provided the brokerage can retrieve its records in both electronic and paper format promptly upon request, in a readable format.

Records in electronic format do not need to be stored at the brokerage’s principal place of business, provided they can promptly be retrieved upon request.

Mortgage brokerage with an endorsement

Only brokerages with endorsements are allowed to receive any money. Brokerages with endorsements have additional compliance and reporting obligations they need to meet. These requirements are complex, and brokerages that have an endorsement need to ensure they have a thorough understanding of all requirements.

Trust and/or money handling

All monies received from borrowers/lenders/investors for dealing/trading in mortgages must be immediately turned over to the brokerage and deposited in a trust account. Funds clearly received as a payment for fees or other remuneration earned by the brokerage should not be placed in a trust account.

The Act and Rule MB-001 Mortgage Brokers Licensing and Ongoing Obligations sets out the prerequisites and requirements to handling trust money and mortgages in trust (see sections 43 through 48 of the Act and Part 6- Trust Property of the Rule). In summary, the Act requires that:

  • trust money must be deposited in a Canadian bank, credit union, or loan and trust company in New Brunswick
  • without prior notification and approval of the Director, licence holders should not open, move, close, or maintain more than one trust account
  • trust funds must be kept separate from other funds, including trust funds held for clients in other jurisdictions
  • if there is a shortfall of money in a trust account, the licence holder shall immediately notify the Director of the shortfall, and deposit its own money into the trust account to correct the shortfall

Brokerages requiring an endorsement must ensure they have policies and procedures in place for strict adherence to trust fund handling and record keeping requirements.

Immediate notification requirement

The Director must be immediately notified if:

  • at any time, the minimum working capital falls below minimum requirement
  • there is a change in a mailing address, e-mail address, address for service, telephone number or fax number
  • the required errors and omissions insurance may not be in force or effect
  • there is a shortfall of money in a trust account. The brokerage must also deposit its own money into the trust account to correct the shortfall.

Endorsement annual filing

In addition to the annual filing requirements of a brokerage, a brokerage requiring an endorsement must:

  • pay the annual endorsement fee before April 1 of each year
  • provide evidence that approved E&O insurance is maintained
  • provide annual information for the period covering January 1st to December 31st of the previous year
  • submit audited annual financial statements, including a written certification made by two directors and an auditor’s report expressing an unmodified opinion. The financial statements must be provided within 120 days after the end of the fiscal year