Questions on FSCO's Errors and Omissions Insurance Audit
1. Does a mortgage brokerage require errors and omissions insurance?
Yes. Each mortgage brokerage requires errors and omissions (E&O) insurance with extended coverage for fraudulent acts. By law, the E&O insurance must provide a minimum of $500,000 coverage in respect of any one occurrence and $1 million in respect of all occurrences in a given year, involving the brokerage and any mortgage broker or agent authorized to deal or trade in mortgages on its behalf. If the brokerage is also applying for an administrator licence, the administrator must also have E&O insurance in the amounts noted above to separately cover losses involving administrator activities.
2. Where does it say that a mortgage brokerage must have errors and omissions insurance?
Subsection 7(4) of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA), together with section 42 of Ontario Regulation 188/08 - Mortgage Brokerages: Standards of Practice, establish the requirement for licensed mortgage brokerages to have errors and omissions insurance with extended coverage for fraudulent acts in the amount noted above.
3. Do mortgage agents and brokers require separate errors and omissions insurance from their mortgage brokerage?
No. Mortgage agents and brokers do not require separate errors and omissions (E&O) insurance from their mortgage brokerage, as they are covered under the mortgage brokerage's errors and omissions insurance policy.
4. My mortgage brokerage also holds a mortgage administrator licence. Do I need two errors and omissions insurance policies?
Businesses that are dually licensed as both a mortgage brokerage and administrator have the flexibility of choosing either one of the following options in arranging their errors and omissions (E&O) insurance coverage:
a) Obtain separate E&O insurance policies for their mortgage brokerage and administrator activities. Each policy must provide coverage of at least $500,000 in respect of any one occurrence and $1 million in respect of all occurrences in a given year.
b) Obtain one E&O insurance policy that covers business activities of both the mortgage brokerage and administrator. This policy must provide coverage of at least $1 million in respect of any one occurrence and $2 million in respect of all occurrences in a given year. The combined policy may, but is not required, to allocate these limits between the mortgage brokerage and administrator. If there is no separation of limits between the two types of business, the total amount of coverage may be available to pay claims as needed, regardless of whether they arise from the brokerage's or administrator's activities.
5. I already have errors and omissions insurance under another licence/registration that I hold. Will this insurance cover me for mortgage brokering?
No. Your errors and omissions insurance policy must be with an approved insurer that covers mortgage brokering activities. See FSCO's list of insurance providers.
Questions on FSCO's Errors and Omissions Insurance Audits
6. Why does FSCO impose administrative monetary penalties?
An administrative monetary penalty may be imposed under section 39 of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA), and in accordance with Ontario Regulation 192/08, in order to:
- promote compliance with the requirements under the MBLAA; and
- prevent a person or entity from deriving - either directly or indirectly - any economic benefit as a result of contravening or failing to comply with a requirement established under the MBLAA.
7. How can a mortgage brokerage dispute a Notice of Proposal to suspend/revoke a licence and/or Notice of Proposal to impose an administrative monetary penalty?
Information on how to dispute a proposed administrative monetary penalty or proposed licence suspension/revocation is included in the Notice of Proposal. Please ensure you note the timing requirements. If you choose to request a hearing before the Financial Services Tribunal, the Superintendent will extend the Interim Order to suspend the mortgage brokerage's licence until the Financial Services Tribunal renders its decision.
8. The mortgage brokerage I work for had its licence suspended. Can I transfer to another licensed mortgage brokerage and continue conducting mortgage business?
Your mortgage broker or agent licence is suspended because your mortgage brokerage's licence is suspended. If you choose to transfer to another licensed mortgage brokerage, your mortgage broker or agent licence suspension will be lifted when you become authorized by another mortgage brokerage to deal or trade in mortgages on its behalf.
9. My mortgage brokerage is currently not conducting mortgage business. Why is errors and omissions insurance necessary?
This is a licensing requirement that went into effect on July 1, 2008. This requirement applies to all licensed mortgage brokerages and is not dependent on whether or not your mortgage brokerage is conducting mortgage business. Having errors and omissions insurance is a condition of having a mortgage brokerage licence.
Subsection 7(4) of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA), together with section 42 of Ontario Regulation 188/08 - Mortgage Brokerages: Standards of Practice, requires licensed mortgage brokerages to have errors and omissions insurance with extended coverage for fraudulent acts, as a condition of holding a licence.
10. Does the mortgage brokerage's interim licence suspension impact its mortgage brokers and agents?
Yes. When a mortgage brokerage's licence is suspended, neither the brokerage nor its brokers and agents can conduct mortgage business in Ontario. A licence suspension impacts all of the mortgage brokerage's operations and transactions. All operations must cease immediately and no transactions can be processed by the brokerage or any of its employees. This means that the licences of the brokers and agents of the brokerage are also suspended.
11. Does FSCO post information on its enforcement activities online?
Yes. FSCO posts information about its enforcement activities on its Enforcement Online web page. Enforcement Online provides information on FSCO's prosecution activities, the decisions arising out of the hearings conducted by the Financial Services Tribunal, and other regulatory activities that help ensure consumer confidence in the financial services sectors that FSCO regulates.
If a mortgage brokerage has its licence suspended, FSCO will also update the information on Licensing Link – FSCO's online registry of licensed mortgage brokerages. Licensing Link should always be checked for current information.
12. My mortgage brokerage received an e-mail/fax that said its licence is suspended. Why is my mortgage broker/agent licence suspended as well?
FSCO has suspended your mortgage brokerage's licence because the brokerage did not comply with requirement to have errors and omissions insurance. Errors and omissions insurance is a licensing requirement under subsection 7(4) of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) and section 42 of Ontario Regulation 188/08 - Mortgage Brokerages: Standards of Practice.
Your mortgage brokerage was given several chances to comply with this requirement, but did not comply. Since the mortgage brokerage's licence was suspended, your mortgage broker/agent licence is automatically suspended by law, under subsection 17(3) of the MBLAA.
13. Can I collect fees for mortgages I previously arranged, or start new deals while the mortgage brokerage's licence is suspended?
You can collect fully earned fees from previously arranged mortgage transactions, as this activity is not considered arranging, dealing or trading in mortgages. However, the mortgage brokerage cannot complete mortgage transactions that are currently in progress. Nor can it accept any new business.