There will be a few more months of talks on how B.C.’s MIC regulations will take shape, as the exemption deadline for dealer registration has been pushed back by the British Columbia Securities Commission for another year.
“This, in our view, shows that the BCSC listened to the views of the industry about the needs of MIC and syndicator investors,” says Samantha Gale
, CEO of the Mortgage Brokers Association of British Columbia, “and that they genuinely intend to find appropriate solutions to the question of how their interests should be protected.
“This is good and welcome news for the industry.”
The temporary exemption from dealer registration requirements – BCI 32-517 – was set to expire at the end of June.
The BCSC had concerns that brokers operated MICs, says Gale, and asked the BCSC for information on compliance problems and the potential impact on the economy.
“The BCSC determined that only $1.8 million worth of mortgage capital would be affected by the implementation of an EMD (exempt market dealer) requirement for MICs and syndicators,” she says, “which does not make sense, as you only have to have one very small MIC shut down to remove that level of capital from the economy.”
The problems with EMD registration is that it is “costly and requires costly ongoing compliance and reporting to BCSC,” says Gale.
“Most small MICs and syndicators probably would not be able to comply with the requirements – medium-size entities might consolidate and the larger entities could handle the requirements,” she told MortgageBrokerNews.ca. “The impact on the available mortgage capital to the public would therefore be profound – putting MICs and syndicators out of business and removing private mortgage placement opportunities for mortgage brokers and the borrower public.”
The MBABC has suggested that syndicated mortgage transactions should be treated as land transactions – not security transactions – and should be regulated under mortgage broker/lender legislation.
Another troubling aspect of the proposed regulations are that EMD registration requires MICs and syndicators to act as financial advisers to investors, says Gale.
“MIC managers, acting in their EMD role, would then have to act as an investment adviser and financial intermediary for each MIC investor,” she says. “This requires that they educate themselves about a host of investment products and become experts in those products.
“The problem here is that MIC managers are busy managing their own MIC by building up a portfolio of mortgages for their pool, administering that mortgage pool and dealing with mortgage borrowers,” says Gale. “Typically there is not an army of financial advisors selling MIC investments – MICs are a one-stop shop providing mortgages to borrowers and pool mortgage investments to shareholders.
“MIC managers are simply not equipped to explain how these other investment products work or even for that matter, provide other specific investment options with other MICs.”