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The Ontario Securities Commission, seen here in December, 2019, announced Monday that it has published its final amendments to the regulatory regime it intends to impose.Melissa Tait/The Globe and Mail

Anticipated changes about how syndicated mortgages are regulated in Ontario have been pushed back to July, 2021.

The Ontario Securities Commission announced Monday that it has published its final amendments to the regulatory regime it intends to impose on syndicated mortgages. If Ontario’s Minister of Finance approves them, the OSC will become the watchdog overseeing their sale – a move that was previously expected to come into force in July, 2020. Syndicated mortgages are groups of individual loans packaged together, and are often used by developers to fund large-scale real estate development projects.

In 2016, in the wake of major losses suffered by retail investors who were drawn to syndicated mortgages, a panel of experts recommended that the products be subject to the same scrutiny from the OSC as securities, such as stocks and bonds. At the time, syndicated mortgages were regulated by the Financial Services Commission of Ontario – which has since dissolved and been replaced by the Financial Services Regulatory Authority of Ontario (FSRA), which continues to oversee them.

Ever since those findings, the agencies have been slowly transitioning authority to the OSC, a move complicated by the complexity of syndicated mortgages as well as the COVID-19 pandemic.

Over the past decade, as older retail investors sought alternatives to low-rate, fixed-income products, syndicated mortgages boomed. But the investments were riskier than many investors understood. Often, the loans ranked behind other secured creditors in the event of default.

Canada’s largest arranger of syndicated mortgage loans for developers, Fortress Real Developments Inc., became the poster child for that misunderstood risk. Fortress helped developers raise $920-million from 14,000 Canadians, some of whom saw their investments wiped out when the development projects failed.

The regulatory changes will bring Ontario in line with other provinces, such as British Columbia. The Canadian Securities Administrators, the umbrella association of Canada’s securities commissions, has also harmonized the rules concerning syndicated mortgages across its members.

Under the proposed amendments, some syndicated-mortgages transactions will remain outside the OSC’s purview. FSRA will continue to oversee the sale of syndicated mortgages that involve only institutional or high-net-worth investors.

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