As we discussed in our March 2019 Bulletin, the Canadian Securities Administrators (CSA) have proposed changes to the regulatory framework for syndicated mortgages (Proposed Amendments) and aim to have the new regime in force by December 31, 2019. Among other things, the existing prospectus and registration exemptions for securities that are syndicated mortgages (Mortgage Exemptions) will be eliminated in Ontario and various other jurisdictions. 

Market participants that are in the business of trading syndicated mortgages and aren’t currently registered with the relevant authorities will need to determine if another registration exemption is available or if they need to become registered. The registration process takes time, and so CSA members are encouraging persons and companies who may have to become registered as a result of these rule changes to do so well in advance of the deadline.

AUM Law is assisting clients affected by the Proposed Amendments. We are seeing some mortgage administrators and brokers who aren’t currently registered with securities regulators start the registration process to become exempt market dealers (EMDs), while other firms are seeking third-party EMDs to assist with their business.If you are thinking about an EMD registration, some issues to consider include management of conflicts of interest, including those relating to being a captive dealer, the qualifications of your candidate for Chief Compliance Officer, concentration risk for your clients, and whether you plan to have ongoing assistance from third-party compliance professionals (such as, ahem, AUM Law).

We also are aware that some firms are exploring structures that would enable their investors to invest in non-qualified, syndicated mortgages through a fund, rather than investing directly in syndicated mortgages.If you are thinking about this option, some issues to consider include the fund’s concentration risk, the investor’s concentration risk (e.g. whether the investor will have more than 10% of its investments in one issuer), the fund’s risk profile, and whether the fund will be distributed by your own EMD or a third-party EMD.