Skip Navigation
Securities Law

NIN 2000/21 - Adoption of Rule 45-501 (BC) and Companion Policy 45-501CP (BC) Mortgages [NIN - Rescinded]

Published Date: 2000-06-09
Effective Date: 2000-06-08

The Commission has adopted Rule 45-501 (BC)1,

1 B.C. Reg. 189/2000.

Companion Policy 45-501CP (BC) and consequential amendments to the Securities Rules, all relating to mortgages. They will come into effect on September 1, 2000. Rule 45-501 restricts the exemptions available for the sale of mortgages through mortgage brokers under sections 46(e) and 75(a) of the Securities Act and provides an exemption for certain simple syndicated mortgages.

The rule has been adopted to ensure that the sale of complex and risky syndicated mortgages to retail investors is subject to the general investor protection regime of the Securities Act. Concurrent with the Commission’s adoption of Rule 45-501, the government is bringing into force amendments to the Mortgage Brokers Act (the “MBA”) and related regulations to provide a scheme of investor protection for the sale of simpler mortgage investments that will remain exempt from the Securities Act.

The effect of Rule 45-501 and the consequential amendments is

  • to limit the registration and prospectus exemptions in sections 46(e) and 75(a) of the Securities Act so that they are only available for non-syndicated mortgages on real property and for mortgages sold to institutional investors.
  • to provide an exemption for relatively simple syndicated mortgages on residential property with no more than four existing residential dwelling units. These mortgages are defined in Rule 45-501 as qualified syndicated mortgages.
  • to repeal sections 92(1) and 131(1) of the Securities Rules, which are no longer required following the amendments to the MBA.

After initially publishing proposed amendments to the Securities Rules restricting the exemptions for mortgages in February 19982,

2 NIN#98/7

the Commission published revised proposed amendments for further comment in August 1999 that further narrowed the scope of the exemption.3

3 NIN#99/30

Rule 45-501 clarifies certain provisions of the published draft amendments and requires disclosure of any amount charged for the administration of the syndicated mortgage.

Amendments to theMortgage Brokers Act

The MBA has been amended. Most of these amendments will come into effect on September 1, 2000 at the same time as Rule 45-501. The MBA amendments require that a mortgage broker provide disclosure to all investors in mortgages (other than where disclosure is provided under the Securities Act) and removes the provisions in the existing MBA that deem certain registrants under the Securities Act and Real Estate Act to be registered under the MBA. As a result of these amendments, securities registrants that wish to sell mortgages under the exemption contained in section 46(e) or qualified syndicated mortgages under Rule 45-501, must be registered under the MBA. The effective date for this change is January 1, 2001 rather than September 1, 2000, the effective date of the other changes to the MBA.

Exemptions from theMortgage Brokers Act

Any person registered under the Securities Act, other than a limited dealer, who complies with the Securities Act in selling non-qualified syndicated mortgages will be exempt from the provisions of the MBA.

Sale of Mortgage Securities Under OtherSecurities ActExemptions

As an alternative to using the exemption for qualified syndicated mortgages under Rule 45-501, mortgage brokers may sell mortgages under other registration and prospectus exemptions, provided all the conditions for those exemptions are met. Examples of exemptions of possible interest to mortgage brokers are discussed in Companion Policy 45-501CP. Anyone contemplating use of these exemptions should consult an experienced securities lawyer to ensure they are complying with all the terms of the appropriate exemption. One of those terms is that a Form 20 is filed with the Commission. Commission staff is monitoring the use of exemptions to ensure compliance with the terms of the exemption. Some of the exemptions require the use of an offering memorandum (Form 43C). Staff is revising Form 43C to address comments raised and will ask the Executive Director to specify a revised form before the effective date of Rule 45-501.

Mortgage brokers are cautioned that in most cases the private issuer exemption in sections 46(j) and 75(a) of the Securities Act will not be available for them to sell interests in mortgages or shares in companies that invest in mortgages, such as mortgage investment corporations. This is because the exemption provides that the securities must not be sold to the public and the courts have taken a very broad view of who is the public in cases relating to this and equivalent exemptions in other jurisdictions. Mortgage brokers are cautioned to consult experienced securities lawyers before attempting to rely on the private issuer exemption.

Discussion of Significant Comments Received

During the most recent comment period, which expired on October 20, 1999, the Commission received four written submissions as well as a number of standard form objections. The Commission also met with the Deputy Registrar of Mortgage Brokers and the Mortgage Brokers Association of British Columbia.

Members of the mortgage brokerage community submitted that the exclusion of syndicated mortgages on commercial real estate projects and on residential real estate property where the property contains more than four dwelling units would render the exemption useless and would significantly affect the commercial and residential mortgage markets. The community feels that the exclusions are based on concerns regarding the method of valuation of these types of property.

In addition, mortgage brokers submitted that registrants under the Securities Act who are not registered as mortgage brokers are not in a position to advise in respect of the valuation of real estate and the risks associated with mortgage investments.

The Commission remains of the view that the risks associated with syndicated mortgages that are not qualified syndicated mortgages under Rule 45-501 are similar to the risks associated with other securities regulated under the Securities Act. The registration and prospectus provisions of the Securities Act provide important investor protection for these types of investment products. The suitability rule is one of the greatest advantages of full compliance with the Securities Act. Both the Commission and the Deputy Registrar of Mortgage Brokersare of the opinion that it is proper to draw a distinction between

  • investments where the value of the property exists at the time the mortgage is granted and the risk associated with the mortgage is limited to fluctuation in real estate values, and
  • investments where the mortgage is not fully secured by the value of the property but depends on cash flow derived from its use or depends on its development.

Transition period

The Commission is aware that these requirements will require certain mortgage brokers to change the manner in which they conduct their business and will impose burdens of time, cost and personnel. As a result, the Commission proposes a transition period for those mortgage brokers that intend to sell complex syndicated mortgages to retail investors. Those mortgage brokers will be required to register under the Securities Act effective September 1, 2000. During a transition period until June 1, 2001, those mortgage brokers would be relieved from certain specific registration requirements provided they meet the following conditions

· filing a Form 3 for the dealer and Form 4’s for each relevant salesperson with the required fees,
· all relevant staff being registered, by September 1, 2000, to take the Canadian Securities Course and the Conduct and Practices Handbook Examination and successfully completing these courses by the end of the transition period,
· the mortgage broker having hired compliance staff that have already completed those two courses,
· dealer procedural requirements, including a proper procedures manual, disclosure documents, and compliance functions,
· a financial institutions bond of a minimum of $200,000,
· appropriate levels of working capital, including a minimum of $50,000 plus the amount of any deductible under a financial institutions bond, and
· monthly filings of financial statements, including capital calculations.


Questions relating to Rule 45-501 and Companion Policy 45-501CP may be referred to:

Brenda J. Benham
Director, Policy and Legislation
British Columbia Securities Commission
(604) 899-6635
or (800) 373-6393 (in B.C.)

Questions relating to registration under the Securities Act and the limited transitional relief should be directed to:

Gayle Carlson
Supervisor, Registration
British Columbia Securities Commission
(604) 899-6692
or (800) 373-6393 (in B.C.)

Questions relating to the amendments to the MBA should be directed to:

Adrienne Murray
Deputy Registrar of Mortgage Brokers
Financial Institutions Commission
(604) 660-0108

DATED at Vancouver, British Columbia, on June 8, 2000.

Douglas M. Hyndman

Ref: NIN#98/7
Form 3
Form 4
Form 20
Form 43C
sections 46(e), 46(j) and 75(a), Securities Act
sections 92(1), 131(1) and 134,Securities Rules

This NIN refers to other documents. These documents can be found at the B.C. Securities Commission public website at in the Commission Documents database.