Will a national Code of Conduct for mortgage professionals protect Canadian homeowners?

The Code is intended to promote high standards of business conduct

Will a national Code of Conduct for mortgage professionals protect Canadian homeowners?

There are well over 12,000 mortgage brokers plying their trade across Canada. The overwhelming majority of them conduct business ethically and with a level of genuine compassion that wary outsiders would probably find shocking. And yet, the industry continues to fight an uphill battle in establishing a positive and trustworthy reputation among the general public.

Choose whatever cliché you like – bad apples spoiling bunches, bad news travelling fast – the problem facing the industry is clear: a breach in ethics by one agent or broker tars the entire industry. (It doesn’t take a Fortress.) They say a person who has a pleasing experience tells five people about it but will tell nine people about a disappointing one; considering today’s prevalence of/reliance on social media, you can safely multiply the latter figure by 100. Bad news doesn’t just travel fast anymore, it travels exponentially.

But what if there were no bad news to circulate, no room for brokers to toe the line between ethical and shady? That’s the question being posed by the Mortgage Broker Regulators’ Council of Canada (MBRCC), which proposed a nationwide Code of Conduct for Canadian brokers late last year.

“The Code promotes high standards of business conduct to protect consumers of mortgage brokering services,” the MBRCC said in a statement released in October. “Once implemented, mortgage professionals across Canada will be expected to follow the conduct standards outlined in the Code and each jurisdiction will promote and enforce the Code through its local approach.”

There’s nothing exceptionally flashy in the proposed Code, which the MBRCC said reflects “common regulatory standards in Canada’s mortgage brokering industry.” Its rather general vibe appears intended to help clamp down on unethical behaviour while not interfering with more specific regional regulations.

“Mortgage professionals will continue to be subject to all regulatory standards in the jurisdiction in which they practice,” the Council said.

Partnering with MBRCC in implementing the Code will be industry groups Canadian Mortgage Brokers’ Association and Mortgage Professionals Canada. In comments to Mortgage Broker News, MPC president and CEO Paul Taylor noted that even though much of the Code will be familiar to most Canadian brokers, it still has the potential to be a valuable document.

“Having an easy to reference listing that can be shared with consumers and easily understood only serves to increase transparency and further improve the reputation of our industry,” Taylor said.

Malon Edwards, senior communications officer of issues and media for the Financial Services Regulatory Authority of Ontario’s public affairs department, told MBN a nationwide Code of Conduct will enhance regulatory flexibility and responsiveness while also increasing consumer awareness of what appropriate service looks like.

The Code, Edwards said, “promotes regulatory compliance, confidence in the sector, and the interests of consumers who deal with licensees.”

What’s in the Code?

MBRCC released a proposed 10-point Code of Conduct in October. The Council solicited feedback from mortgage professionals for a two-month period starting October 23, so the final Code could look somewhat different by the time it is finalized. The Code in its original form contained the following 10 principles:

  • Compliance and outcomes
  • Accountability
  • Honesty
  • Competence
  • Suitability
  • Disclosure
  • Management of conflicts of interest
  • Security/confidentiality
  • Stewardship
  • Co-operation with regulators

Interested readers can view the entire document here. “Must” pops up frequently in it, an encouraging sign of seriousness. But readers will also see more than a few “shoulds”, which are notoriously hard to enforce.

Edwards, however, doesn’t see enforcement as a potential sticking point.

“The Code principles substantially correspond to existing conduct requirements in the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) and its regulations,” Edwards told MBN by email. “Enforcement tools can be used to enforce the Code.”

Edwards said FSRA will be using adherence to the Code as a key factor in determining whether an individual or an entity is suitable for licensing.

“All licensing/renewal applicants will acknowledge that they are aware of and understand the Code. Principal brokers will be required to attest in the Mortgage Brokerage Declaration of Compliance that the brokerage requires its authorized brokers and agents to adhere to the Code. FSRA has authority to refuse, revoke or suspend a license based on suitability,” he said.

Jerome Trail, principal at The Mortgage Trail, said the Code is “a step in the right direction” for an industry whose new hires receive what most feel is woefully inadequate training.

“We need more of it, and we need it yesterday,” Trail said. “The educational and licensing requirements are so thin, anything’s going to be an improvement. It takes five days to get a certification to arrange the financing for what will probably be the largest purchase that any individual will make. Just how much professionalism can be expected from that?”

Next steps

Once the Code is approved and put into effect, jurisdictions across the country will promote it using a unique, local approach. Melissa Hogg, FSRA’s director of corporate communications for public affairs, shared with MBN the Association’s proposed guidance outlines for Ontario, which include:

  • Mortgage professionals will acknowledge that they are aware of and understand the Code as part of their application, including upon renewal.
  • Principal brokers are to declare, as part of the Mortgage Brokerage Declaration of Compliance, that the brokerage has implemented processes to ensure that the brokerage, its agents, and its brokers adhere to the Code. Principal brokers will also be expected to identify and address any issues of non-compliance.
  • Brokerages and administrators will incorporate the Code into their policies and procedures, record non-adherence to the Code, and identify and implement actions to rectify the non-adherence. Related information should be made available to FSRA upon request.
  • Administrators, in their Annual Information Returns, are to incorporate the principles of the Code in their policies and procedures.

“Mortgage professionals across Canada are expected to follow the conduct standards outlined in the Code,” Hogg added.

FSRA will be seeking industry and consumer comments on its proposed approach to incorporating the Code until January 15.