Tina-Louise Gouveia v. Superintendent of Financial Services, 2012 ONFST 19

2012 ONFST 19

Decision No. M0477-2011-1

Date: 2012/07/16

IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006, S.O. 2006, c. 29 (the “Act”), in particular sections 7, 19, 21, 38 and 39; Ontario Regulation 188/08, in particular section 42; and Ontario Regulation 192/08, in particular section 3;

AND IN THE MATTER OF a Notice of Proposal issued by the Superintendent of Financial Services on August 16, 2011, to revoke the brokerage licence of Tina-Louise Gouveia and a Notice of Proposal issued on the same day to impose an Administrative Monetary Penalty of $3,000 on Tina-Louise Gouveia;

AND IN THE MATTER OF a Request for Hearing filed on August 31, 2011, pursuant to subsections 21(3) and 39(5) of the Act.

BETWEEN:

TINA-LOUISE GOUVEIA

Applicant

and -

SUPERINTENDENT OF FINANCIAL SERVICES

Respondent

BEFORE:

Ms. Heather Gavin

Member of the Tribunal and Chair of the Panel

Ms. Jennifer Brown

Member of the Tribunal and Member of the Panel

Mr. John Solursh

Chair of the Tribunal and Member of the Panel

Ms. Tina-Louise Gouveia, representing the Applicant

Ms. Larissa Easson, representing the Respondent

HEARD:

April 20, 2012

A. INTRODUCTION

This is a decision upon a hearing held pursuant to s.21(3) and s.39(5) of the Mortgage Brokerages, Lenders and Administrators Act, S.O. 2006 (“the Act”) at the request of Tina-Louise Gouveia (the “Applicant”), dated August 31, 2011.

On August 16, 2011, the Superintendent of Financial Services (“the Superintendent”) issued a Notice of Proposal (the “NOP”) to revoke the mortgage brokerage licence of Tina-Louise Gouveia and impose an Administrative Monetary Penalty (“AMP”) of $3,000 against the Applicant for failing to comply with the requirement to have errors and omissions insurance on two separate occasions, the last being from at least April 1, 2010 until February 9, 2011, approximately 8 months.

The Tribunal rejects the submissions made by the Applicant. For reasons that follow, we find that the Applicant contravened the Act on two distinct occasions, that a monetary penalty would serve legitimate purposes, and that the amount of $3,000 is both proportional and appropriate. We also find that the Applicant’s Mortgage Brokerage Licence should be revoked. Accordingly, we direct the Superintendent to carry out the NOP to impose an administrative monetary penalty of $3,000 on the brokerage Applicant and revoke the licence for Tina- Louise Gouveia.

B. STATUTORY FRAMEWORK

The Superintendent is authorized to issue mortgage brokerage licences under the terms of the Act, which came into effect July 1, 2008. Mortgage brokerages are required by the Act and the regulations to have errors and omissions insurance in a form approved by the Superintendent and with a minimum level of coverage.

The Mortgage Brokerages: Standards of Practice Regulation, O. Reg. 188/08 prescribes standards of practice for every mortgage brokerage licence that is issued under the Act, including the following:

42.(1) A brokerage shall maintain errors and omissions insurance in a form approved by the Superintendent with extended coverage for loss resulting from fraudulent acts or shall have some other form of assurance in a form approved by the Superintendent.

(2) The insurance or other assurance must be sufficient to pay a minimum of $500,000 in respect of any one occurrence involving the brokerage or any broker or agent authorized to deal or trade in mortgages on its behalf and $1 million in respect of all occurrences during a 365-day period involving the brokerage or any such broker or agent.

The Act provides for the revocation of a licence by the Superintendent in any of the circumstances where the Superintendent may suspend a licence. The relevant provisions of the Act are sub-sections 18(1) and 19(1) as follows:

(1) The Superintendent may, by order, suspend a licence,

(a) if the licensee ceases to satisfy the prescribed requirements for issuance or renewal, as the case may be, of the licence;

(b) if the Superintendent believes, on reasonable grounds, that the licensee is no longer suitable to be licensed having regard to the circumstances, if any, prescribed for the purposes of subsection 14 (1) or 16 (4), as the case may be, and such other matters as the Superintendent considers appropriate;

(d) in such other circumstances as may be prescribed.

(1) The Superintendent may, by order, revoke a licence in any of the circumstances in which he or she is authorized by clause 18 (1) (a), (b), (c) or (d) to suspend the licence.

The Act provides for the imposition of administrative penalties as follows:

38.(1) An administrative penalty may be imposed under section 39 or 40 for either of the following purposes:

To promote compliance with the requirements established under this Act.
To prevent a person or entity from deriving, directly or indirectly, any economic benefit as a result of contravening or failing to comply with a requirement established under this Act.

(2) An administrative penalty may be imposed alone or in conjunction with any other regulatory measure provided by this Act, including a compliance order or the amendment, suspension or revocation of a licence.

39.(1) If the Superintendent is satisfied that a person is contravening or not complying with or has contravened or not complied with a requirement established under this Act, other than a requirement for which a penalty is provided under section 40 or a requirement prescribed under clause 55(5)(a), the Superintendent may, by order, impose an administrative penalty on the person or entity in accordance with this section and the regulations.

Section 39 goes on to provide that the Superintendent shall give a notice of proposal to impose an administrative penalty, which may be combined with a notice of proposal authorized by any other section of the Act, and that the person on which the penalty would be imposed may request a hearing on the proposal before this Tribunal (subsections (2) and (3)), as has happened in this case.

The Administrative Penalties Regulation, O. Reg. 192/08, provides criteria to govern the amount of an administrative penalty as follows:

The Superintendent shall consider only the following criteria when determining the amount of an administrative penalty to be imposed under section 39 of the Act for a purpose set out in section 38 of the Act:

The degree to which the contravention or failure was intentional, reckless or negligent.
The extent of the harm or potential harm to others resulting from the contravention or failure.
The extent to which the person or entity tried to mitigate any loss or to take any other remedial action.
The extent to which the person or entity derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure.
Any other contraventions or failures to comply with a requirement established under the Act or with any other financial services legislation of Ontario or of any other jurisdiction during the preceding five years by the person or entity.

Section 41 of the Act provides that the maximum administrative penalty that may be imposed on a person or entity that is a mortgage brokerage for a failure to comply with a requirement of the Act is $25,000 and the maximum penalty that may be imposed on an individual who is a mortgage broker is $10,000.

Upon holding a hearing on a notice of proposal under the provisions of the Act relating to a proposed imposition of an administrative penalty or the suspension or revocation of a licence, the Tribunal may direct the Superintendent to carry out the proposal, with or without changes, or substitute its opinion for that of the Superintendent (subsections 21(4) and 39(6)).

C. ISSUES

The issues to be determined in this case are:

Should the mortgage brokerage licence of the Applicant be revoked?
Should an AMP be imposed against the Applicant, and if so in what amount?

D. BACKGROUNG AND RELEVANT FACTS

Both the Applicant and the Superintendent have agreed that:

The Applicant is a mortgage brokerage under the Act and has been licensed since June 13, 2008.
The Superintendent has approved providers for providing E&O insurance to licensees under the Act.
In October 2008, the Superintendent conducted an audit of mortgage brokerages and determined that the Applicant did not have E&O insurance. The Superintendent contacted the brokerage for an explanation by email dated November 26, 2008.
No response was received, so the Superintendent sent a letter by registered mail dated December 12, 2008 to the Applicant seeking information. No response was received so on January 22, 2009, a representative of the Superintendent contacted the brokerage by telephone. The Applicant stated she had done no business and that she would be applying for insurance through IMBA.
On January 22, 2009, the Applicant provided an E&O insurance certificate with a start date of January 21, 2009. For the period of July 1, 2008 to January 20, 2009, the Applicant was without E&O insurance.
The Superintendent conducted a second audit of mortgage brokerages on October 2010 and determined that the Applicant did not have E&O insurance from one of the approved providers from April 1, 2010 to February 9, 2011.
On December 14, 2010, the Superintendent sent an email to the Applicant stating that the audit had determined that the brokerage did not have E&O insurance. When no response was received, the Superintendent sent a letter to the Applicant by registered mail on January 12, 2011.
On January 26, 2011, the Applicant emailed the Superintendent, acknowledging receipt of the January 12 letter and acknowledging that she did not have E&O insurance. She stated she had not been active. On February 10, 2011, the Applicant provided the Superintendent with an E&O insurance policy with a start date of February 10, 2011. No verification or proof of insurance was provided by the brokerage for the period April 1, 2010 to February 9, 2011 and the brokerage was not insured for that period.
This was the second time that the Applicant has failed to maintain E&O insurance in connection with this brokerage licence under the Act.
The Applicant has filed an Annual Information return for the years 2009 and 2010 indicating that the brokerage had done no business.

In addition, the Tribunal received the undisputed Affidavit of Mr. Anatol Monid, the Director of Market Regulation in the Licensing and Market Conduct Division of FSCO who provided the following background:

The system of regulation created by the Act and the regulations made under it is designed to ensure that the public receives ethical, competent, and knowledgeable services from those licenced under the Act to carry on the business of dealing, trading or administering mortgages in Ontario.
Mortgage brokerages have voluntarily chosen to engage in a business that requires a licence and which involves regulations – they essentially agree to subject themselves to a regulatory regime.
The Act’s regime depends on voluntary compliance.
Brokerages must comply with ongoing requirements including minimum standards of practice, for example, requirements relating to the provision of accurate licensing information to the public, advertising, disclosure of the details of particular transactions, maintaining records, and managing trust funds and maintenance of E&O insurance coverage.
The Act imposed certain requirements, including the need for E&O insurance on mortgage brokers, and imposed new standards of conduct on mortgage brokers and agents to know their clients, ensure suitability of the mortgage product and advise borrowers, lenders and investors of material risks.
There are no exemptions under the Act from the requirement to have E&O insurance, which is the sole responsibility of the brokerage.
When applying for a licence or licence renewal, the applicant must provide the insurance policy number and name of insurer.
The failure to do business is not a basis of any insurance exemption.
There is no practical way for a regulator to know on a day-to-day basis whether a brokerage is doing business. The only practical approach is that in order to hold a licence the brokerage must have E&O insurance.
In October 2008, the first audit determining brokerage compliance with the E&O insurance coverage determined that 30% of brokerages did not have E&O insurance.
At the time of the 2008 Audit, the MBLAA regime and the E&O insurance requirements were new and it was anticipated that some brokerages would be unfamiliar with the new requirements and may take some time to achieve full compliance.
A low penalty of $1,000 for non compliance in the 2008 audit was a signal that non compliance was not taken lightly and would encourage compliance.
The AMP presently being proposed as a result of the 2010 audit are slightly higher, proposing a penalty of $1,500 for a first offence and doubling for brokerages having a repeated offence of not having E&O insurance.
Apart from enforcement action that may be taken against a brokerage directly in response to a breach of a legislative requirement, a brokerage that repeatedly breaches the Act or regulations demonstrates ungovernability. Ungovernability justifies revocation of a licence.

Ms. Tina-Louise Gouveia provided the following testimony:

Concerning the first lapse in E&O insurance, the FSCO registered mail in December 2008 was not received by the Applicant. However when the brokerage received verbal information from FSCO that E&O insurance was lacking, insurance was obtained.
In 2010, E&O insurance was attempted, but not completed. The Applicant admitted that follow-up was not as good as it should have been, and was unsure on the period of time that coverage was in place, and it could have been from January 21, 2010. Records were not kept for the brokerage, and in any case there was numerous break-ins at her residence so records were not available.
Currently, the Applicant has established a relationship with the Insurance Broker where they would provide advanced notice of coverage renewal, so she would not have to maintain awareness of the E&O insurance requirement.
The Applicant has not done any business, marketing with the brokerage licence, but believes that in the future she will have to rely on this business as her primary source of income.
She was very apologetic and the lapse of E&O insurance was not intentional, however she was very vague on the requirement to maintain E&O insurance.

E. DECISION

The Tribunal has concluded that the revocation of the licence and the imposition of a monetary penalty in this case is appropriate and will serve as a deterrent to others. The maximum penalty under the Act is $25,000. The Superintendent is proposing a penalty of $3,000, and we agree.

In determining the appropriate amount of the penalty the Tribunal must take into account the five criteria set out in section 3 of the Administrative Penalties Regulation.

The first criterion is the degree to which the contravention or failure was intentional, reckless or negligent. We find that the second breach of the E&O insurance requirement was both intentional and negligent. The Applicant would have reasonably recognized from the first breach that E&&O insurance was a requirement of the Act, but chose to ignore renewing the insurance because failure in the first instance did not have any penalty attached to it.

The second criteria, is the extent of the harm or potential harm to others resulting from the contravention or failure. In our view, there was no real harm as the Applicant at no time conducted any mortgage brokerage business.

The third criterion is the extent to which the person or entity tried to mitigate any loss or to take any other remedial action. The applicant would have known that as of at least April 1, 2010 there was no E&O insurance for the brokerage, and certainly as of December 2010 when notified by FSCO on the lack of E&O insurance coverage, but took no action until February of 2011 to obtain E&O insurance. This was a period of at least 8 months, but could have been from January 21, 2010, a period of 13 months.

The fourth criterion is the extent to which the person or entity derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure. The Applicant received an economic benefit in the amount of the insurance premium for the lapsed 8 to 13 months that the brokerage was without coverage but the holder of a licence under the Act.

The fifth and final criterion is any other contraventions or failures to comply with a requirement established under the Act or with any other financial services legislation of Ontario or of any other jurisdiction during the preceding five years by the person or entity. Apart from the failure to have insurance in 2008, there was no suggestion that there was any other contravention or failure in this case.

We turn now to whether the licence of the Applicant should be revoked. The Superintendent has advanced the argument that the Applicant has proven to not being amenable to being regulated under the Act, and there is no reasonable assurance that the Applicant will ensure compliance in the future.

As stated in the Millennium Mortgage Corporation (Decision No. M0365-2009-1) the Tribunal must be mindful, in deciding whether to revoke a mortgage brokerage licence, of two considerations, namely:

(i) the underlying rationale of the Act in that it is designed to protect the public interest and enhance public confidence in the mortgage industry; and

(ii) the consequences of a decision to revoke a licence which can be financially severe for the licensee in that such a decision will preclude him or her from earning a livelihood in a chosen line of work.

In this instance, we find that the Applicant was not only unclear regarding the requirements of the Act, but also the actions taken by the brokerage during the past two year. As a result, we believe that the first consideration of protecting the public interest and enhancing the public confidence in the mortgage industry would not be met if the Applicant maintained the brokerage licence.

On the second consideration, we note that the broker licence for Ms. Gouveia is still in place, and if she so chooses she may pursue the mortgage broker business by joining a licenced brokerage. This would not preclude her from earning a livelihood in this line of work, and would in fact be beneficial to her and the public as there would be proper administrative procedures in place.

The two tests being met, we order that the Brokerage Licence for Tina-Louise Gouveia be revoked.

F. ORDER

We hereby direct the Superintendent, by order, to carry out his proposal to impose an administrative monetary penalty upon the Applicant in the amount of $3,000. We further direct the Superintendent to carry out his proposal to revoke the licence of the Applicant.

DATED at the City of Toronto, this 16^th day of July, 2012.

“Heather Gavin”

Heather Gavin

Member of the Tribunal and Chair of the Panel

“Jennifer Brown”

Jennifer Brown

Member of the Tribunal and Member of the Panel

“John Solursh”

John Solursh

Chair of the Tribunal and Member of the Panel