FINANCIAL SERVICES TRIBUNAL
2012 ONFST 24
Decision No. M0501-2012-1
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
AND IN THE MATTER OF Future Financial Inc.
AND IN THE MATTER OF a Request for Hearing pursuant to ss. 21(3) and 39(5) of the Act
BETWEEN:
FUTURE FINANCIAL INC.
Applicant
and
THE SUPERINTENDENT OF FINANCIAL SERVICES
Respondent
BEFORE:
Ralph Scane Member of the Tribunal and Chair of the Panel
Shiraz Bharmal Member of the Tribunal and of the Panel
David Short Member of the Tribunal and of the Panel
APPEARANCES:
For Future Financial Services Inc.: (“Future”) Ms Maesume Dehghani (Principal Broker)
For the Superintendent of Financial Services (“the Superintendent”) Mr. Joe Nemet
September 24, 2012
REASONS FOR DECISION
This is a Hearing following a Request for Hearing filed by Future, pursuant to subsections 21(3) and 39(5) of the Act, after receiving Notices of Proposal (“NOPs”), dated April 16, 2012, issued by the Superintendent. The NOPs propose to revoke the Mortgage Brokerage licence of Future and to impose an administrative penalty upon Future of $3000, for failure to maintain required Errors and Omissions (“E & O”) insurance. Such insurance is required by s. 7(4) of the Act, supplemented by s. 42 of the Mortgage Brokerages: Standards of Practice Regulation, O.Reg. 188/08. Future admits that it did not have such insurance during the period from July 1, 2010 until March 1, 2011. The Superintendent alleges that the above failure to carry such insurance is aggravated by an earlier similar failure, and by the fact that it had done business in 2010 while it was uninsured. Future, which originally obtained a brokerage licence on July 1, 2008, was discovered, after an audit of brokerages, to have been without the requisite insurance for the period from July 1, 2008 until December 2, 2008. Future was allowed to surrender its brokerage licence in May, 2009, and the Superintendent took no further action against it for the 2008 infraction.
On November 4, 2009, Future reapplied to be licensed as a mortgage brokerage. The new licence was granted on December 8, 2009. At that time, Future advised that it had requisite insurance coverage in place until July 1, 2010.
At the hearing, Ms Dehghani, the Principal Broker of Future, pleaded in mitigation of the failure to renew coverage after the July 1, 2010 expiration of the original E & O policy taken out when Future was relicensed, that she was seriously distracted from business and frequently absent from active participation in it, during 2010 and 2011, by two family matters. Her father, who lived abroad in her home country, was ill with two forms of cancer. This took her abroad for lengthy periods at the end of 2010 and through much of 2011. During these lengthy absences, Future’s office was closed and unattended, except for occasional short visits by the Principal Broker’s husband to gather mail. The husband had no other involvement with Future, and the brokerage had no other employees. Her daughter, who lived with her, had been ill for several years, and required a major operation in 2010, requiring her to be hospitalized from about mid-April to mid-May of 2010, and to require extensive home care and visits to rehabilitation programs afterwards. She was still actively engaged in caring for her daughter, and was only going into Future’s office about once weekly, around the time her E & O policy expired. She does not recall receiving any renewal notice, and was not conscious of the expiration. She stated that she placed only a “couple” of mortgages in 2010, mostly near the end of the year.
This latter statement was a surprise to counsel to the Superintendent, who had been examining Ms Dehghani on the Annual Information Return (AIR) for the calendar year 2010, filed by her on behalf of Future. That form stated that, during the reporting period, Future had acted with respect to 40 mortgages, with a total mortgage value of 16 ½ million dollars, and had three brokers and nine agents registered by the brokerage during the year. In fact, Ms Dehghani stated, she was working alone during this period.
Her explanation for this surprising discrepancy was that she had not understood the relevant questions in the AIR. At the time of the surrender of Future’s original licence in May, 2009, she and those other persons who had been working through Future went to work with another brokerage. At the time Future was relicensed in December, 2009, she anticipated that Future’s previous brokers and agents would return with her, but this did not happen. Future worked in some form of cooperation with the other brokerage for some time after relicensing, running its mortgage applications through that broker. The figures for the number of brokers or agents registered by Future, and the number and value of mortgages, were the number that had been anticipated by the two brokerages to be supplied by Future during 2010.
The Proposed Penalties
Imposition of an Administrative Monetary Penalty
By s. 39(1) of the Act, the Superintendent is authorized to impose an administrative monetary penalty on persons or entities whom he is satisfied have contravened or not complied with a requirement established under this Act, other than certain requirements not relevant here. Such penalties are imposed, as stated by s. 38(1) of the Act, “[to] promote compliance with the requirements established under this Act”, and “[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.”
Criteria governing the amount of an administrative penalty to be imposed are provided by s. 3 of the Administrative Penalties Regulation, O.Reg. 192/08:
The Superintendent shall consider only the following criteria when determining the amount of an administrative penalty to be imposed under s. 39 of the Act for a purpose set out in s. 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 take 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 jurisdiction during the preceding five years by the person or entity.
Applying the above criteria to the conduct of Future at issue here, the Tribunal finds as follows:
The failure to carry E & O insurance during the period in question here was clearly very negligent. Allowing for the distractions caused by the health problems of Ms Dehghani’s family, the management of the brokerage business on the part of the principal broker, and particularly the oversight of its regulatory obligations, was far short of the care needed and expected in operating a business strictly regulated for the public’s financial safety. However, the Tribunal does not find the omission to maintain insurance to have been intentional, or even reckless, to the extent that the latter word connotes indifference to whether rules are complied with or not.
There is no evidence of harm to others, but there was certainly potential harm, as the brokerage was apparently open for business during the uninsured period, and at least some business was done during the period during which Future was uninsured.
Future did take out insurance after the omission was drawn to its attention.
Future did save some premium expense during the uninsured period.
It was not alleged that this paragraph was applicable here.
An affidavit of Mr. A. Monid, Director of the Market Regulation Branch, Licensing and Market Conduct Division of the Financial Services Commission of Ontario (FSCO), was filed on this hearing. He deposed, inter alia, that in cases where brokerages had been found to be non-compliant with respect to insurance coverage requirements following FSCO’s 2010 compliance audit, and had been so found for a second time, the Superintendent was generally proposing to assess a penalty of $3000. While the Tribunal is sympathetic to the personal problems suffered by the Principal Broker, Ms Dehghani, she chose to try to keep at least a semblance of business going at her brokerage, and actually wrote some business while uninsured, while losing track of the state of Future’s insurance coverage, although she must have been well aware of the legal requirements. For this reason, the Tribunal considers that the administrative monetary penalty of $3000, as proposed in the NOP, is fully justified.
Revocation of Mortgage Brokerage Licence
The Superintendent is authorized by s. 19 of the Act to 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”. Section 18(1) in turn provides that the Superintendent may
suspend a licence,
(a) if the licensee ceases to satisfy the prescribed requirements for the 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;
(c) if the licensee contravenes or fails to comply with a requirement established
under this Act; or
(d) in such other circumstances as may be prescribed.
The Superintendent is authorized by s. 38(2) of the Act to revoke a licence in conjunction with the imposition of an administrative penalty.
It is clear that the statutory threshold for revoking the licence of Future is met. However, revocation is discretionary, and the question here is whether the discretion to revoke Future’s mortgage brokerage licence should be exercised. Revocation of a brokerage licence held by a principal broker who obviously wishes to continue in that business, as is the case here, is a serious matter, as it will obviously affect the earning capacity at least of the principal broker. The Tribunal has recognized this as a relevant factor in previous cases. However, the confusion, to say the least, displayed with respect to the reporting of the number and value of mortgages written, and of staff employed, in the 2010 AIR, was of serious concern to the Tribunal. The Tribunal considers that the relevant questions posed by the AIR form were clear and simple. Combined with the failure of the Principal Broker to make appropriate arrangements for the monitoring of Future’s business during her numerous and lengthy absences, the other circumstances outlined above justify the proposed revocation of Future’s brokerage licence. The Tribunal notes that the Principal Broker’s own broker’s licence is not affected by this revocation.
Order
The Superintendent is directed to carry out the Notices of Proposal referred to above.
Dated at Toronto this 10th day of October, 2012.
“Ralph Scane” Ralph Scane Member of the Tribunal and Chair of the Panel
“Shiraz Bharmal” Shiraz Bharmal Member of the Tribunal and of the Panel
“David Short” David Short Member of the Tribunal and of the Panel