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Mortgage Administrators, and Principal Administrator Compliance Requirements

Administrators must act in the best interests of the private investor.

Once licensed, an administrator must ensure that it complies with all aspects of the legislation. All administrators must designate one individual (a director or officer of the corporation) to act as the principal administrator. This person will represent the administrator in all interactions with FCNB. They are responsible for ensuring the administrator and all persons acting on its behalf are in compliance with the legislative requirements.

Compliance with the financial security requirements set by the Director must be maintained at all times. Administrators must also provide the necessary annual filings, including audited financial statements and an annual information return confirming compliance with the legislation.

Prohibited activities

The Mortgage Brokers Act and rules prohibit administrators from:

  • administering mortgages without a licence
  • charging or accepting a fee until:
    • there is written confirmation to fund
    • a mortgage agreement is entered into
    • the mortgage has been funded and secured
  • administering a mortgage if there is reason to believe its renewal or investment is unlawful
  • using an unauthorized name. The only name that can be used is the name on the licence
  • receive or hold trust money on behalf of a private investor, without a duly executed trust agreement expressly stating the person is acting as a trustee for an investor
  • offering guarantees to lenders/investors. Licence holders cannot offer a guarantee to a lender/investor regarding a mortgage loan or mortgage investment
  • engaging in tied selling. Lenders/investors cannot be required to obtain a product/service as a condition for obtaining another product or service from the administrator

Principal Administrator

A principal administrator must be a director or officer of the corporation. The principal administrator is responsible for ensuring the administrator and every person acting on behalf of the administrator complies with the law.

Policies and procedures

The legislation requires the principal administrators to review the mortgage administrators policies and procedures in place to ensure the mortgage administrator and those acting on its behalf comply with the requirements in the Act and rules.

These policies and procedures must be periodically reviewed by the principal administrator, who is required to make written submissions to the administrator if the policies and procedures are not adequate.

Policies and procedures should include supervisory processes dealing with verification of the identity of lenders and investors, as well as identifying and disclosing potential conflicts of interest that the administrator or any employee administering a mortgage may have in connection to that mortgage.

This includes policies and procedures on the following eleven topics.

Complaint handling

Each administrator 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 administrator 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. An administrator must notify the Director immediately if errors and omissions insurance is cancelled or not renewed or if coverage falls below the minimum mandated.

Annual filings

To assist administrators in identifying the legislative 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 return for the year ended December 31
  • provide evidence that approved E&O insurance is maintained
  • file 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

Immediate notification requirement

In addition to the annual filing requirements, administrators need to comply with the ongoing immediate notification requirements to the Director, including:

  • if the working capital requirements fall below minimum requirement
  • a change in contact information, such as:
    • e-mail address
    • phone number
    • mailing address or address for service
  • 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
  • if the required errors and omissions insurance may not be in force or effect

Change in circumstances notification requirement

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

  • a change in directors or officers
  • a change in authority to administer mortgages in another jurisdiction
  • criminal charges
  • civil actions
  • bankruptcy, receivership or winding-up proceedings
  • a change in the location of records
  • a change in fiscal year

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

Record keeping

Sections 44 and 48 of Rule MB-001 set out the record-keeping requirements of administrators. Administrators are required to keep complete and accurate records of their business activities in New Brunswick, which must be kept separate or distinguishable from trust funds or other assets. Documentation supporting all financial affairs and client transactions must be maintained. A principal administrator is also responsible for reviewing every trust account reconciliation record and certifying its accuracy.

Record storage

Administrators 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 administrator 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 administrator’s principal place of business, provided they can promptly be retrieved upon request.

Administration agreement

An administrator is prohibited from administering a mortgage on behalf of a private investor unless the administrator has entered into an agreement with that private investor. Section 39 of MB-001 outlines the terms and conditions that are required in all administration agreements.

The disclosure of all information to the private investor must be made at the earliest opportunity and no later than two business days before the agreement commences, unless written consent of the investor is received, in which case disclosure may be made no later than one business day.

Administrators must not administer a mortgage for lender/investor if there is a reason to believe the mortgage, its renewal, or the investment is unlawful.

Trust agreement

Section 49 of MB-001 sets out the requirements for a written trust agreement. This agreement must establish responsibility for the payment of fees and expenses in relation to the administration of the mortgage. The written trust agreement should also address how interest, if any, on funds held in trust will be distributed between parties.

The trust agreement and the administration agreement may be combined into one agreement.

Trust/money handling

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

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:

  • 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
  • an administrator who receives trust money on behalf of a private investor in the form of periodic payments must pay that money to the private investor within 30 days after receiving it
  • 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

Further to the requirements set out in the Act, Part 6 of the MB-001 outlines trust property requirements, including record keeping, monthly reconciliation, trust agreements, mortgages held in trust, and trust money handling.