Move aims to ensure brokers make appropriate product recommendations to clients
Final principles aimed at safeguarding consumers in the mortgage space and ensuring mortgage brokers make appropriate product recommendations to clients have been published by the Mortgage Broker Regulators’ Council of Canada (MBRCC).
The body has made two revisions to proposed principles based on feedback received since they were first published during the summer.
Noting that one industry stakeholder expressed concerns about language used in the original preamble that could be perceived as indicating “the possibility of regulations that are stronger than the suggested principles,” the new version clarifies that the intention is for the principles to guide mortgage brokers.
“The expectation is that by following these Principles in conducting their business, brokers will also meet their local requirements,” MBRCC said.
The revised principles also clarify that brokers are required to understand and assess all product options “reasonably available to them” – rather than all options on the market.
That change arose from stakeholder comments that brokers shouldn’t be expected to consider all available lending options, MBRCC indicated, “since this would result in the broker having high-level knowledge of many options instead of in-depth knowledge of a reasonable breadth of alternatives.”
Feedback was provided by three stakeholders: Bud Jorgenson, Mortgage Professionals Canada’s (MPC’s) director for Saskatchewan, the Canadian Alternative Mortgage Lenders Association (CAMLA), and the Canadian Mortgage Brokers Association (CMBA).
MBRCC said the majority of respondents had indicated “general support” for the proposed principles in their comments.
Antoinette Leung, MBRCC’s chair, said the principles would “support the industry’s provision of suitable recommendations to clients, enhancing the protection of Canadian consumers during a period of challenging financial conditions.”
The six mortgage product suitability assessment principles finalized by MBRCC are as follows:
- Know Your Client (KYC): Regulated persons and entities must understand the unique needs and circumstances of their client.
- Know Your Product (KYP): Regulated persons and entities must understand and be able to explain the mortgage products that are reasonably available to them (for instance, the features and risks of a product)
- Assess options and make suitable recommendations: Regulated persons and entities must ensure any mortgage product option or options they present to the client match their client’s unique needs and circumstances.
- Clearly communicate and explain rationale of the recommended option: Regulated persons and entities must clearly explain to their client any mortgage product option or options they present for the client’s consideration. The explanations must include documented rationale for the option or options they present to the client. Regulated persons and entities should obtain written acknowledgement from their client that the client understands the option or options.
- Ensure adequate oversight and accountability: Regulated entities should have reasonable processes in place to ensure regulated persons authorized by the brokerage conduct adequate suitability assessments of mortgage product options and present the option or options that are suitable for the client.
- Document suitability assessment and oversight: Regulated persons and entities, as applicable, must adequately document their suitability assessments. Documentation should, at a minimum, include the mortgage product recommendation provided to the client, and the rationale for how the recommendation matches the client’s unique needs and circumstances. Further, regulated entities should document their (a) approach to reviewing the suitability assessments conducted by their authorized regulated persons, and (b) implementation of such approach.