Financial
Institutions
Commission
January 6, 2016
An Open Letter to Mortgage Brokers
The Financial Institution Commission' s (FICOM) expectations regarding compensation
disclosure have prompted much discussion and feedback.
As our consultations progress I wanted to share with you what we have learned so far, invite
your ongoing ideas and questions, and provide additional information on some important matters
that industry has raised.
We have learned through our consultations over the previous 6 months that:
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You want consumers to continue to receive quality mortgage advice.
You want consumers to understand the disclosure being provided, particularly any dollar
amounts.
You want to ensure that disclosure is not required to an unreasonable degree of accuracy,
particularly when it comes to volume bonuses.
You want to know how to disclose compensation splits between brokers and brokerages.
You want to know when the changes are coming, how they will be rolled out, and how
you can prepare.
FICOM welcomes ongoing discussion with you on these and other important issues and
questions. This will help us ensure that the interests of consumers, industry, and FICOM are
appropriately balanced in our regulatory requirements.
Please contact us directly at brokerconsultation@ficombc.ca to share your ideas on these topics
and others that are important to you. We would like to hear from you by February 20, 2016.
To provide additional clarity and facilitate ongoing discussions, I also wanted to take this
opportunity to respond to some of the comments we have heard in our ongoing consultations.
Why is compensation transparency important to FICOM?
I invite you to ask "what do consumers expect from a mortgage broker".
Registrar of Mortgage Brokers
2800-555 West Hastings
Vancouver, BC V6B 4N6
Telephone: 604 660-3555
Facsimile: 604 660-3365
www.fic.gov.bc.ca
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Answers to that question may vary, but I think we can agree that consumers believe a
mortgage broker works in their best interests. They believe a mortgage broker has access
to multiple lenders who compete for the consumer's business. Consumers believe that a
mortgage broker's advice is driven solely by the consumer's interests.
Industry understands that lender compensation can influence a mortgage broker's advice
to a consumer. That can result in advice that does not align with the consumer's best
interests.
Conflict of interest disclosure reinforces the relationship of trust between consumers and
mortgage brokers, and reduces the risk that consumers receive compromised advice.
However, for disclosure to be effective it must be clear and easy for consumers to
understand.
What is FICOM proposing?
Under proposed improvements to conflict of interest disclosure a broker will need to
disclose to consumers in dollar terms the commission and volume bonuses, plus other
rewards, that a broker and their brokerage receive from a lender. A broker will also need
to disclose compensation that co-brokers receive on the transaction.
A declaration that the broker is paid by a lender does not go far enough in describing, in a
meaningful way, the interests that the broker and related parties receive from the
transaction. It masks the nature of those interests and keeps them hidden from the
consumer.
Why now?
FICOM's primary job is to anticipate risks and take action before they can become
problems for the public and the economic well-being of the province. We take that
assignment seriously.
FICOM has observed the intense competition between lenders for a mortgage broker's
business, the types of incentives this competition generates, and the influence this can
have on advice to clients on individual files. We are concerned about the potential
conflicts this creates.
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There is increased international and national regulatory focus on compensation
transparency in the financial services sector. This focus recognizes that the consumers of
financial products are more vulnerable than consumers of other products and place a high
degree of reliance on advisors to help them make an informed decision. The impact of
the wrong mortgage on a consumer can be significant and long term, particularly in
markets with rising prices and intense competition between buyers.
FI COM has reviewed its interpretation of the legislation in light of the above issues.
How has FICOM managed the consultation process to date?
FICOM announced its plans regarding improved compensation transparency in June
2015 . In September 2015 we briefed a focus group of industry leaders in British
Columbia on the reasons for the improvements and requested their insights. We also
provided a draft bulletin and forms to your industry associations for feedback. In
October, we talked to trade publications that ran stories introducing the issues to industry.
In November we convened a focus group of BC lenders to briefthem on the
improvements and seek their perspectives. Throughout the previous 6 months we have
also had many individual discussions with people in your industry about compensation
transparency.
FICOM remains in consultation mode and we welcome input directly from all industry
participants.
FI COM does not as a matter of course consult industry on legislative interpretation. In
this case however, we thought it important to consult industry on how best to implement
our enhanced expectations.
When will implementation occur?
FI COM is in consultation mode and has therefore not set an implementation date.
We appreciate that responding to our expectations may require some administrative
changes within brokerages, and that these adjustments will take time to implement.
We will set out a firm implementation timeline when we have completed our
consultations.
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In closing, I would like to emphasize that consumer protection, transparency, and choice are
values that we share. FICOM has confidence in the services that mortgage brokers provide. We
also have confidence in industry's capacity to provide helpful feedback that will ensure
improved disclosure results in even higher standards of professionalism and service delivery to
consumers.
Thanks again for taking the time to participate in this very important discussion.
Carolyn Rogers,
Registrar of Mortgage Brokers