CSA reforms syndicated mortgage rules

Regulators harmonize exemptions and enhance disclosure requirements


The Canadian Securities Administrators (CSA) are going ahead with measures designed to enhance investor protection for buyers of syndicated mortgages, a move that will also harmonize the CSA’s rules in this area.


The provincial regulators have finalized a set of proposed changes to the registration and prospectus exemptions that can be used to distribute syndicated mortgages.


The CSA first proposed reforms in 2018 and conducted two comment periods, and then revised those proposals last year. Now it has finalized the changes, which are expected to take effect March 1, 2021.


The final reforms include eliminating exemptions that currently exist in certain markets, restricting the private issuer exemption, and introducing added requirements for the offering memorandum (OM) exemption, which would still be available to issuers.


In a notice outlining the changes, the CSA said that investors who buy syndicated mortgages will be better protected as the rules will require registered dealers to be involved with distributions in all markets. Further, investors will receive enhanced disclosure under the OM exemption, the CSA said.


“We anticipate that this additional disclosure would result in more informed investment decisions and enable registrants involved in the distribution to better fulfil their obligations related to the distribution,” it said.


At the same time, the initiative is intended to more closely harmonize the rules for syndicated mortgages across the CSA.


“These changes substantially harmonize the regulatory framework for syndicated mortgages in Canada, enhancing investors’ ability to make informed decisions about these investments and enabling registrants who distribute these products to better fulfil their obligations,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a release.


In Ontario specifically, where oversight of syndicated mortgages is to be transferred from the Financial Services Regulatory Authority of Ontario (FSRA) to the Ontario Securities Commission (OSC), the OSC also proposed amendments to its rules today to facilitate that transfer.


The proposals, which are out for comment until Sept. 21, clarify the definition of qualified syndicated mortgages and include exemptions for certain distributions by licensed mortgage brokers.


Additionally, FSRA launched a consultation on proposed guidance that sets out its approach for supervising mortgage brokers that are involved in distributing syndicated mortgage investments — they will remain under FSRA’s oversight. The proposed guidance is also out for comment until Sept. 21.


In a release, the OSC said that it’s working with FSRA and the provincial finance ministry “[…] to facilitate the transfer of regulatory oversight.”


Last December, those two regulators said that the transfer would occur in July of this year. It’s now expected that the oversight transfer will take place on March 1, 2021, when all of the various rule changes are to take effect.

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