A year ago, we reported that the Canadian Securities Administrators (CSA) plan to amend the regulatory framework for syndicated mortgages (2018 Proposal). Just over a year later, the CSA published for comment a revised proposal (2019 Proposal), which takes into account feedback that CSA staff received on the 2018 Proposal. We compare and contrast the proposals below.

  • Mortgage exemptions removed: Like the 2018 Proposal, the 2019 Proposal will, if adopted, remove the existing prospectus and registration exemptions for securities that are syndicated mortgages (“Mortgage Exemptions”) in Ontario, Nova Scotia, Prince Edward Island (PEI), Newfoundland and Labrador, the Northwest Territories, Nunavut, and the Yukon.
  • Bye bye private issuer exemption: Consistent with the 2018 Proposal, the private issuer prospectus exemption will be removed for syndicated mortgages if the 2019 Proposal is adopted.
  • Be like BC: Regulators in several jurisdictions are proposing exemptions similar to those contained in BC Rule 45-501 Mortgages.
    • Some jurisdictions to exempt “qualified, syndicated mortgages”: The regulators in Ontario, New Brunswick, Nova Scotia and Newfoundland plan to adopt prospectus and dealer registration exemptions for qualified, syndicated mortgages. The regulators in Alberta and Québec are proposing to adopt prospectus exemptions for qualified, syndicated mortgages.
    • Permitted clients exemption: Alberta is proposing a prospectus exemption for syndicated mortgages distributed to permitted clients.
  • Get ready to register soon: The 2018 Proposal would have staggered the implementation dates for the removal of the Mortgage Exemptions, so that the amendments to the registration exemption would have come into effect twelve months after the amendments to the prospectus exemption. The CSA has scratched that plan and now intends that all of the proposed amendments will come into effect on December 31, 2019. In Ontario and other jurisdictions where the Mortgage Exemptions currently apply to syndicated mortgages, market participants that are in the business of trading syndicated mortgages and aren’t currently registered with the relevant authorities will need to determine whether another registration exemption is available to them or whether they need to become registered.
  • Distributions under the offering memorandum (OM) exemption: The CSA have tweaked a few elements of their proposed changes to the OM exemption for syndicated mortgages. Like the 2018 Proposal, the amendments set out in the 2019 Proposal will require supplementary disclosure tailored to syndicated mortgages to be provided to investors in connection with distributions under the OM Exemption. Among other things, the issuer will have to deliver an appraisal, prepared by a qualified, independent appraiser, of the current fair market value of the property underlying the syndicated mortgage to prospective purchasers of the securities.
    • The 2018 Proposal would have permitted the appraisal to have been dated up to 12 months prior to the date it was delivered to prospectus purchasers. Taking into account comments that this was too long a period given rapidly changing real estate markets, the CSA has revised the requirement so that the appraisal date must be within six months preceding the date of its delivery to prospective purchasers.
    • The proposed mortgage broker certificate requirement has been removed.
    • Additional guidance on the identity of the issuer of a syndicated mortgage has been provided.

Raise Your Hand:  The comment period closes on May 14. The 2019 Proposal is one of several initiatives affecting the regulatory landscape for syndicated mortgages in Ontario. AUM Law has been facilitating discussions between some of our clients in the syndicated mortgage market, on the one hand, and staff of the OSC, the Financial Services Regulatory Authority of Ontario (FSRA), and the Ministry of Finance, on the other, regarding their concerns about and potential changes to the 2019 Proposal. These clients are preparing a submission and seeking a critical mass for their comment letter.