Who Is Liable When the Guardrails Come Down? A $155,000 FSRA Case With No Fraud in It
Our last enforcement piece looked at a case where agents were used to facilitate a mortgage fraud scheme. The lesson there was that dealing outside your brokerage strips away the supervision the Act is built on.
This case asks the follow-up question. When those guardrails come down, who is liable?
According to a recent FSRA Notice of Proposal, the answer is everyone who touched it. An agent. The brokerage that let him in. The principal broker who signed the file. And a corporation that was never licensed at all.
Proposed penalties total $155,000. There is no fraud in this case. Nobody was impersonated. No forged documents. No title insurer absorbing a loss. Every violation is a failure of licensing and supervision.
That is why it matters more to the average practitioner than a fraud case does. Most agents will never knowingly sit across from a fraudster. Many will find themselves in a situation that looks a great deal like this one.
What happened
An agent was licensed and authorized under one brokerage. Over 2021 and 2022, he arranged mortgages and ran them through a second brokerage, one co-owned by his mother. His authorizing brokerage had no record of most of them.
FSRA investigators asked one lender for a list of transactions the agent had arranged. The lender produced 41. On 33 of them, the agent had prepared and signed Disclosure to Borrower documents on his authorizing brokerage’s forms. That brokerage had records of eight. The other 25 were processed through the second brokerage. The agent invoiced at least $214,000 in commissions on those 25 transactions.
One further transaction, on a Toronto property in November 2022, drew separate attention. The principal broker of the second brokerage processed that deal through his own brokerage and signed the Disclosure to Borrower himself. The brokerage collected $24,975 in commission. The agent’s authorizing brokerage received nothing and has no record of the transaction.
While arranging that same mortgage, the agent used an email account at the second brokerage, and signed those emails “Mortgage Broker.” He was licensed as a mortgage agent. FSRA states he has never been licensed as a mortgage broker under the Act.
Separately, the agent was the sole director of a corporation that has never been licensed under the Act. That corporation issued a commitment letter to the borrower on its own letterhead. The agent collected $2,000 from the borrower under it. Before funding, the mortgage was assigned to a licensed lender.
These are allegations. Each party is entitled to a hearing before the Financial Services Tribunal, and nothing has been proven. The rules being applied are already in force.
| Party | What they did | Provision contravened | Proposed penalty |
|---|---|---|---|
| The agent | Dealt in mortgages on behalf of a brokerage other than the one that authorized him. Signed emails “Mortgage Broker” while licensed as an agent. | s.2(3) of the Act s.11(4) of the Act |
$75,000 $10,000 |
| The second brokerage | Authorized an agent it knew, or reasonably ought to have known, was authorized by another brokerage. | s.43(2), O.Reg 188/08 | $25,000 |
| The principal broker | Failed to take reasonable steps to ensure the brokerage complied with the Act. | s.2(1), O.Reg 410/07 | $10,000 |
| The unlicensed corporation | Held itself out as a mortgage lender without a licence. Described itself as a “mortgage brokerage” after receiving a Letter of Warning. | s.4(2) of the Act s.11(2) of the Act |
$25,000 $10,000 |
The agent is alleged to have contravened subsection 2(3) of the Act by dealing in mortgages for remuneration on behalf of a brokerage other than the one that authorized him. Proposed penalty: $75,000. A further $10,000 is proposed for using a restricted title, contrary to subsection 11(4).
The second brokerage is alleged to have contravened subsection 43(2) of Ontario Regulation 188/08, which prohibits a brokerage from authorizing an individual to deal or trade in mortgages on its behalf when it knows, or reasonably ought to know, that the individual is authorized by another brokerage. Proposed penalty: $25,000.
The principal broker is alleged to have contravened subsection 2(1) of Ontario Regulation 410/07, which requires a principal broker to take reasonable steps to ensure the brokerage, and each broker and agent authorized on its behalf, complies with every requirement under the Act. Proposed penalty: $10,000.
The unlicensed corporation is alleged to have carried on business as a mortgage lender without a licence, contrary to subsection 4(2) of the Act, and to have used a restricted title, contrary to subsection 11(2). Proposed penalties: $35,000.
One agent’s decision to route deals through the wrong brokerage created liability for a brokerage, a principal broker, and a corporation. Nobody in this chain was accused of stealing anything.
The principal broker’s duty
Subsection 2(1) of Regulation 410/07 reads:
The principal broker of a brokerage shall take reasonable steps to ensure that the brokerage, and each broker and agent authorized to deal or trade in mortgages on its behalf, complies with every requirement established under the Act.
That is an affirmative duty. It is not a prohibition on participating in violations, and it is not an obligation to act once you find out. It is a standing requirement to take reasonable steps.
In this case, the Notice alleges the principal broker allowed the agent to deal on the brokerage’s behalf despite knowing the agent was authorized elsewhere. He permitted the agent to use a company email account and to identify himself as a mortgage broker. He submitted the Toronto property transaction through his brokerage and signed the Disclosure to Borrower.
FSRA’s framing of the harm is worth understanding. Brokerages must maintain oversight over agents and over the remuneration charged on mortgage transactions, so that borrowers and lenders receive the safeguards they are entitled to and are not charged unauthorized or inappropriate fees. By authorizing the agent to act, FSRA says, the brokerage and its principal broker facilitated the harm.
The principal broker is not treated as a bystander who missed something. He is treated as part of the mechanism.
The practical question for any principal broker reading this: could you demonstrate to a FSRA investigator what reasonable steps you have taken to verify that every agent operating under your brokerage is authorized only by your brokerage? Not that you believe it. That you checked, and can show the record.
The brokerage’s own duty
Subsection 43(2) of Regulation 188/08 places an independent obligation on the brokerage itself. A brokerage shall not authorize an individual to deal or trade in mortgages on its behalf if it knows, or reasonably ought to know, that the individual is a broker or agent authorized to deal on behalf of another brokerage.
“Reasonably ought to know” belongs to the same family of standard we examined in the fraud case. It does not require proof that someone checked the registry and proceeded anyway. It asks what a competent brokerage should have known given the circumstances in front of it.
The onboarding lesson is direct. Verifying licence status and current authorizing brokerage is not a courtesy. It is a legal precondition to letting anyone deal on your behalf. A relationship with the agent, whether family, longtime colleague, or high producer, is not a substitute for the check. It is the circumstance in which the check most often gets skipped.
Ten thousand dollars for an email signature
The agent signed his emails “Mortgage Broker.” He held a mortgage agent licence.
Subsection 11(4) of the Act prohibits using a description that might reasonably be expected to lead to the belief that a person is a mortgage broker unless that person is licensed as a mortgage broker. Proposed penalty: $10,000. The allegation rests on the signature block.
The unlicensed corporation ran the same problem at the entity level. It identified itself as a “mortgage brokerage” on its website. FSRA issued it a Letter of Warning in February 2022. It then issued fee agreements stating it was a mortgage brokerage. That sequence, warned and then continued, is what supports FSRA’s finding that the conduct was intentional. Subsection 11(2) of the Act, $10,000.
FSRA’s stated reason for treating restricted titles seriously is that misuse may cause the public to believe a person or entity is licensed, depriving them of the services of a licensed individual and the protections of the Act and Regulations.
The title is not decoration. It is a representation about what protections the person across the table is entitled to. “Broker” is not a synonym for “agent.” “Mortgage brokerage” is not a synonym for “mortgage company.” These words are defined in statute, and using the wrong one is a standalone violation carrying a standalone penalty. Your email signature, your LinkedIn headline, your business cards, and your website all count.
Holding yourself out as a lender
The last piece is narrower but instructive. The unlicensed corporation issued a commitment letter to a borrower on its own letterhead, and $2,000 was collected under it.
Subsection 4(1) of the Act provides that a person or entity is a mortgage lender in Ontario when they lend money in Ontario on the security of real property, or hold themselves out as doing so. Subsection 4(2) prohibits carrying on business as a mortgage lender without a brokerage licence or an exemption.
Note the mechanics. The corporation never funded the mortgage. Before funding, the deal was assigned to a licensed lender. That did not matter. Issuing a commitment letter in its own name was holding itself out as a lender, and that is where the violation attached.
If your corporation’s name appears on a commitment letter, you are representing that you are a lender. Whether the money ever leaves your account is a separate question.
What to actually do
- For agents. Deal only through your authorizing brokerage, on every deal, regardless of who is asking or what the relationship is. Use only the title your licence supports. Review your email signature, profiles, and marketing.
- For brokerages. Verify licence status and current authorizing brokerage before onboarding anyone, and document that you did it. Reverify at renewal. Subsection 43(2) makes this the brokerage’s own violation, independent of the agent’s.
- For principal brokers. Your obligation under subsection 2(1) of Regulation 410/07 is affirmative and ongoing. Build a documented supervision routine: file review, meaningful scrutiny before disclosure sign-off, periodic licence verification, and a written policy on side arrangements and family-connected transactions. If you cannot produce evidence of reasonable steps, good intentions will not fill the gap.
- For everyone. Consider how this began. An agent with a personal connection to a second brokerage, a convenient email account, and a set of files that never reached the brokerage that was supposed to see them. Nothing about it looked like fraud. FSRA is proposing $155,000 in penalties.
The bottom line
Supervision is not administrative overhead. It is how the Act protects borrowers and lenders, and the Act distributes liability to everyone who lets it lapse. The agent who steps outside. The brokerage that opens the door. The principal broker who signs without looking. Each has a separate duty, and each carries a separate penalty.
You do not need a fraud to end up in a Notice of Proposal. You only need a chain of people who assumed someone else was watching.
This article is general education for mortgage professionals and is not legal advice. The matter described is the subject of a Notice of Proposal, which contains allegations that have not been proven. The full Notice of Proposal is available on FSRA’s enforcement page at https://teao.fsrao.ca:7179/api/enforcement/downloadDocument?Id=4446&lang=en. For advice on your actual mortgage, reach out to a licensed, qualified mortgage agent.
REMIC
