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Monday, August 31, 2020

CSA Amendments

On August 6, 2020, the Canadian Securities Administrators (the “CSA”) published the final amendments relating to changes to the registration and prospectus exemptions regime governing the distribution of syndicated mortgages (the “Amendments”).

The Amendments, among other things, remove the prospectus and registration exemptions that currently apply to syndicated mortgages in Ontario, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island and Yukon.

In publishing the Amendments, the CSA acknowledge that time is required to adjust to the removal of the exemptions that are currently available for syndicated mortgages. The new requirements under the Amendments will only apply to syndicated mortgages distributed after the effective date of the Amendments. Existing mortgages will not be affected. However, future advances of funds from existing lenders for retail investors who do not qualify as accredited investors will be subject to alternative prospectus exemptions.

OSC Amendments

The Ontario Securities Commission (“OSC”) concurrently published for comment amendments to its local prospectus and registration exemptions regarding syndicated mortgages. These proposed local amendments, together with the Amendments, are intended to facilitate the transfer of regulatory oversight of certain syndicated mortgage investments to the OSC.

In publishing its amendments, the OSC has advised that firms that are not currently registered with the OSC and whose activities include distributing non-qualified syndicated mortgages to retail investors should submit an application for registration as soon as possible. 


The CSA define a syndicated mortgage as a mortgage where two or more persons participate directly or indirectly, as a lender in a debt obligation that is secured by the mortgage. Over the past few years, there has been a significant increase in offering syndicated mortgages in connection with real estate developments. These offerings, especially in the case of retail investors, have continued to raise investor protection concerns.

Summary of the Amendments

The Amendments are primarily reflected in a series of adjustments to National Instrument 45-106- Prospectus Exemptions (“NI 45-106”) and National Instrument 31-103- Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”). The CSA also published its changes to Companion Policy 45-106CP- Prospectus Exemptions and Companion Policy 31-103CP- Registration Requirements, Exemptions and Ongoing Registrant Obligations.

As a result of the Amendments, the CSA will make the following changes to the syndicated mortgages regime effective March 21, 2021:

Removing the Prospectus and Registration Exemptions

The current registration and prospectus exemptions that apply to syndicated mortgages will be removed to harmonize the regulatory framework for distributions of syndicated mortgages in Canada.  

Additional Requirements to the Offering Memorandum Prospectus Exemption

The Amendments impose additional requirements on the offering memorandum prospectus exemption (the “OM Exemption”) to enhance investor disclosure for offerings of syndicated mortgages made under the OM exemption.

The Amendments require issuers distributing securities in reliance on the OM Exemption to, among other requirements, deliver an appraisal, prepared by a qualified appraiser who is independent of the issuer, that respects the fair market value of the property subject to the syndicated mortgage, without considering any proposed improvements or proposed development. The appraisal must be prepared in accordance with the applicable professional standards and provide the appraised fair market value of the property at a date that is within six (6) months before the date that the appraisal is delivered to the purchaser. 

Private Issuer Prospectus Exemption No Longer Available for the Distribution of Syndicated Mortgages

The Amendments will exclude syndicated mortgages from the private issuer exemption to ensure that syndicated mortgages are offered under an exemption that is more appropriate for this type of security. Under the private issuer exemption, syndicated mortgages could previously be executed by banks that do not report their transactions to the Investment Industry Regulatory Organization of Canada.

Impact on Investors

The CSA highlight that investors in syndicated mortgages who purchase under the OM exemption will now be entitled to enhanced disclosure on their investment. The CSA anticipate that this enhanced disclosure will result in more informed investment decisions and enable registrants to better fulfill their obligations. The CSA also highlight that as a result of the Amendments, the involvement of a registrant in the distribution of syndicated mortgages will better protect investors.

The CSA also note distributions of syndicated mortgages under other prospectus exemptions, such as the accredited investor prospectus exemption (the AI Exemption) or the family, friends and business associates prospectus exemption (the FFBA Exemption) will be subject to the same requirements as the distribution of other types of securities.

With respect to the exemptions for qualified syndicated mortgages or syndicated mortgages sold to permitted clients, there will be no change from the current regime under the Amendments.

Ontario Specific Changes

The OSC has concurrently published for comment additional amendments to OSC Rule 45-501 Ontario Prospectus and Registration Exemptions. The purpose of these amendments is to clarify the definition of “qualified syndicated mortgage” and expand the proposed exemptions related to mortgages. Under the proposed changes, the Financial Services Regulatory Authority of Ontario will continue to maintain oversight of qualified syndicated mortgage distributions.

Clarifying the Definition of Qualified Syndicated Mortgage

The OSC is proposing changes to the definition of qualified syndicated mortgage to clarify that its intention is to capture lower-risk products. Currently, the definition of qualified syndicated mortgage limits the scope of syndicated mortgages to lower-risk mortgages on primarily residential property. The changes to the definition include:

  • that in determining the 90% loan-to-value requirement by indicating that any other obligations with equal or greater priority to the syndicated mortgage must be treated as fully drawn for the purposes of the calculation;
  • excluding syndicated mortgages that are subject to future subordination without the consent of lenders;
  • clarifying the drafting of the definition; and
  • deleting unnecessary elements of the definition that were potentially confusing and that suggested that administration fees could not be charged.

Despite industry comments suggesting the OSC should expand the scope of the definition, the OSC indicated that it ultimately decided not to expand the definition as it could result in a reduction of available financing for small business and subject mortgage brokerages to unnecessary regulatory burden. Instead, the OSC is proposing to include syndicated mortgages sold to permitted clients within the scope of the proposed prospectus and registration exemptions since it will maintain access to capital for small businesses and minimize the burden on mortgage brokers who do not deal with retail investors.

Expanding the Proposed Mortgage Exemptions

The syndicated mortgage exemptions in NI 45-106 and NI 31-103 are expected to apply in Ontario. The OSC, however, is also proposing to include exemptions related to the sale of mortgages by mortgage brokers licensed under the Mortgage Brokers, Lenders and Administrators Act (“MBLAA”). The purpose of these added exemptions is to reduce the regulatory burden for mortgage brokerages licensed under MBLAA by providing a single consolidated set of exemptions related to mortgages that apply to them.

The deadline for submitting comments to the OSC is September 21, 2020.

Please contact Geoffrey Cher by email at or any other member of our Regulatory & Compliance practice group if you have any questions as to how to register with the OSC or in order to seek assistance with the preparation of a comment letter.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

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