More protection proposed for investors in beefed-up syndicated mortgage rules
Securities regulators pitch rules to give more info to investors before they sign up
Canadian securities regulators want to change the rules that govern the selling of controversial syndicated mortgages in order to better protect investors.
In a syndicated mortgage, a borrower will seek out a group of two or more private lenders to invest money in a property, instead of going to the bank.
This week, the Canadian Securities Administrators (CSA) proposed a group of changes that would remove exemptions that allow the investments to be sold without registering with regulators or filing a prospectus in certain areas.
Those changes, along with beefed-up disclosure requirements, would "enhance investor's ability to make informed decisions when purchasing these investments," wrote CSA chair and president Louis Morisset in a statement.
The changes would also require an appraisal by an "independent, qualified appraiser" of the property in question.
Last April, a CBC Toronto investigation reported on a group of 120 people from the Greater Toronto Area's Chinese community who likely lost nearly $9 million in syndicated mortgage investments after the person they lent the money turned around and loaned it to a convicted fraudster.
At the time, fraud examiner Bill Vasiliou told CBC Toronto that while syndicated mortgages can be legitimate, legal investments, they can also be used as a cloak for fraud.
A real estate lawyer in Toronto, David Franklin, thinks that about $1 billion in total has been lost by Ontario investors in syndicated mortgages.
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Responding to questions about syndicated mortgages back in April, the Ontario Ministry of Finance said they were committed to "strengthening protection for investors."
They also indicated they wanted to shift regulatory oversight of syndicated mortgage investments from the Financial Services Commission of Ontario — a body that's been criticized for lacking the expertise to regulate the high-risk investments — to the Ontario Securities Commission.
The CSA has opened their proposed rule changes up for comments until June 6.