B.C. Mortgage Services Act: Bill 29’s Impact on Mortgage Lenders

British Columbia’s Bill 29 repeals the Mortgage Brokers Act and replaces it with the Mortgage Services Act (MSA). The MSA establishes a licensing and regulatory regime for mortgage brokerages, principal brokers and mortgage lenders. While the majority of the MSA is not yet in force, the Bill will significantly impact non-institutional and non-Canadian mortgage lenders. 

The Bill was written largely in response to the 2022 Commission of Inquiry into Money Laundering in British Columbia (the Cullen Report). The MSA is set to replace the Mortgage Brokers Act, R.S.B.C. 1996, c. 313, which came under scrutiny in the Cullen Report and is considered outdated and insufficient to address modern concerns. 

Summary

The MSA establishes a licensing regime for mortgage lenders. The specific impact of the MSA on mortgage lenders depends on rules that have not yet been enacted. The MSA imposes a registration requirement on mortgage lenders who are not otherwise exempt, affecting individuals and non-Canadian lenders in particular. If the rules follow the pattern set for mortgage brokers, they may impose education and experience qualifications and some form of background check on applicants. The B.C. Financial Services Authority (BCFSA) will be responsible for administering the MSA.

Recommendations From the Cullen Report

Recommendation 29 from the Cullen Report suggests that "the Province enact legislation directed at private mortgage lenders providing for registration, oversight, and enforcement. This regime should be separate from the scheme applicable to those engaged in brokering loans."

While the recommendation suggests that the legislation regulating mortgage lenders be separate from legislation pertaining to mortgage brokers, that was not the end result. The reasoning for the change (according to the debate in the legislature) was that including private lenders in the MSA was intended to leverage the Real Estate Services Act licensing model. Merging the regulation of mortgage lenders with mortgage brokers and principal brokers was also seen as a way to avoid legislative gaps and minimize lenders’ regulatory burdens. 

Registration Requirements for Mortgage Lenders

Section 3(3) of the MSA states that a person must not provide mortgage services or mortgage lending unless the person is licensed as a mortgage lender, mortgage brokerage, principal broker or mortgage broker, or is exempted. These services include taking a mortgage over real property in British Columbia.

Section 4 of the MSA provides, in part, that the following are exempt from this licensing requirement: 

a. insurance companies

b. savings institutions

c. a director, officer or employee of a person referred to in paragraph (a) or (b), in respect of mortgage services provided on behalf of that person

While “insurance company” and “savings institution” are not defined in the MSA, “insurance company” is defined in the Interpretation Act (B.C.) as an insurance company that is authorized under the Financial Institutions Act (B.C.) and “savings institution” is defined as a bank, credit union, extraprovincial trust corporation or subsidiary of a bank that is a loan company subject to the Trust and Loan Companies Act (Canada). A bank is further defined as a bank to which the Bank Act (Canada) applies. These two definitions are of concern for non-Canadian lender insurance companies or banks lending into British Columbia on the security of a mortgage. 

It is common for a non-Canadian bank or other lender to take security over Canadian real property in a larger multi-jurisdictional financing where such lender may not be governed by these Canadian statutes. For example, several United States banks have Canadian branch offices or subsidiaries authorized under the Bank Act as foreign banks, but these U.S. banks may not use the Canadian-authorized subsidiary to take the mortgage security, which consequently raises the concern of whether this would require them to become registered under the MSA. Many non-Canadian banks, insurance companies and their subsidiaries are not registered or authorized under the Bank Act or Financial Institutions Act but, in any event, can otherwise legally take a mortgage over real property in B.C. as security for a loan. Of course, individual lenders, whether they are Canadian or non-Canadian, will typically be caught by the licensing requirements of the MSA as they are not exempt. 

Licence Qualifications and Applications 

Section 14 of the MSA sets out the basic process to apply for a licence or for the renewal, amendment or reinstatement of one. The form and manner, as well as the specific information required for the application, are left to be developed by the superintendent at the BCFSA. The applicant must also provide “any prescribed fee in relation to” the application and licence. These details are to be developed by the BCFSA as part of the rules under the MSA and have not yet been released.

Section 15 of the MSA outlines the qualifications for obtaining a licence. However, it does not provide details regarding the application for a mortgage lender licence beyond stating that the applicant must satisfy the superintendent that the applicant meets the qualification requirements established by the rules. Section 63 states the B.C. Financial Services Authority (BCFSA) may make rules that it considers necessary or advisable respecting licensing or regulating licensees for the provision of mortgage services. This can include rules concerning the education, experience or other qualifications of a person to obtain or renew a licence, including rules conferring discretion to determine equivalent qualifications. 

While there are no rules made yet, the MSA is compared several times to, and described as being modelled after, the Real Estate Services Act. The Real Estate Services Act rules may be used as an indicator of what the BCFSA may require. These rules currently consist of educational requirements, background checks and experience requirements of between 2 to 5 years for individuals. It is unclear what other requirements the BCFSA may impose on lenders required to become licensed under the MSA.

Temporary Licences 

Section 19 permits the superintendent to issue a temporary licence. In this case, the licence would require the licensee to meet one or more specified conditions within a specified period of time or by a specified date. The licence is cancelled if they do not meet these specified requirements by such time. 

Failure to Obtain a Licence

Failure to be Licensed

Section 6 states that if a person fails to be licensed or if there is an irregularity in a person’s application for a new licence or application for renewal, amendment or reinstatement, a mortgage will not be rendered void, voidable or unenforceable. 

Refusal to Issue a Licence or Renew Licence 

Under Section 15, the superintendent can refuse to issue a licence if the applicant does not meet the aforementioned qualifications. However, before refusal, the superintendent must give notice to the applicant and provide the applicant with an opportunity to be heard on the matter. If the application is refused, the superintendent must provide a written notice of refusal with reasons for the refusal and advise of the right to appeal under Division 6 (Appeals to Financial Services Tribunal). Section 20 allows the superintendent to impose conditions or restrictions on a licence. However, they must provide notice and reasoning to the applicant in the same manner as a refusal. 

Offences

Section 66 outlines the offences. Anyone who contravenes Section 3(3) (i.e., the requirement to hold a licence for mortgage lending) commits an offence. In addition, anyone who contravenes Section 34 (wrongful taking), Section 35 (deceptive dealing), and Section 39 (interference with investigation) commits an offence. A person who authorizes, permits or acquiesces in the commission of an offence also commits an offence. Section 67 provides the penalties for an offence. A corporation is liable on a first conviction to a fine of up to C$1.25-million and on the second conviction to a fine of up to C$2.5-million. An individual is liable for the same fines or imprisonment for up to two years, or both. The limitation period for commencing prosecution is six years after the date the superintendent first became aware of the facts on which the prosecution is based.

BCFSA and Creating Rules

Sections 63 and 64 of the MSA permit the BCFSA to create rules for the administration of the MSA; however, before making, amending or appealing a rule, the BCFSA must publish the proposed rule for public comment, obtain the minister’s consent and comply with the procedures and requirements outlined in the regulations. These rules and process for licensing have not yet been released by the BCFSA.

These rules and the resulting process for registration with the BCFSA will have significant impact on private and non-Canadian institutional mortgage lenders in British Columbia once they are effective. We encourage lenders to discuss with their legal counsel whether they will be required to register under this new process early in the loan transaction.

For more information, please contact:

or any other member of the Commercial Real Estate group.