FSRA Enforcement, Notice of Proposal, 20-06-2023 - 1813404 Ontario Corp. CSI Mortgages, Hansel Patrick

IN THE MATTER OF the Mortgage Brokerages, Lenders and Administrators Act, 2006,
S.O. 2006, c.29, as amended (the “Act”), in particular sections 19, 21, 38 and 39;

AND IN THE MATTER OF 1813404 Ontario Corp. o/a CSI Mortgages and Hansel Patrick.

NOTICE OF PROPOSAL TO REVOKE LICENCE AND TO IMPOSE ADMINISTRATIVE PENALTIES

TO:
1813404 Ontario Corp. o/a CSI Mortgages 595 Cityview Blvd., Unit 3
Vaughan, ON L4H 3C7

AND TO:
Hansel Patrick
Principal Broker

TAKE NOTICE THAT pursuant to sections 19 and 21 of the Act, by delegated authority from the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario (the “Chief Executive Officer”), the Director, Litigation and Enforcement (the “Director”) is proposing to revoke the mortgage brokerage licence issued to 1813404 Ontario Corp. o/a CSI Mortgages (licence # 12052).

AND TAKE NOTICE THAT pursuant to section 39 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to impose administrative penalties in the total amount of $10,000 on 1813404 Ontario Corp. o/a CSI Mortgages as follows:

an administrative penalty of $5,000 for failing to maintain Errors and Omissions (“E&O”) insurance coverage contrary to section 42 of Ontario Regulation 188/08;

an administrative penalty of $1,000 for failing to immediately notify the Chief Executive Officer of its E&O insurance cancellation contrary to section 13 of Ontario Regulation 193/08; and

two administrative penalties of $2,000 each, totalling $4,000, for the provision of false statements to the Chief Executive Officer on two separate occasions contrary to section 45 of the Act.

AND TAKE NOTICE THAT pursuant to sections 19 and 21 of the Act, by delegated authority from the Chief Executive Officer, the Director is proposing to revoke the mortgage broker licence of Hansel Patrick (licence # M08006978).

AND TAKE NOTICE THAT pursuant to section 39 of the Act, and by delegated authority from the Chief Executive Officer, the Director is proposing to impose two administrative penalties of $2,000 each, in the total amount of $4,000, on Hansel Patrick for providing false or misleading statements to the Chief Executive Officer on two separate occasions contrary to section 45 of the Act.

Details of these contraventions and reasons for this proposal are described below. This Notice of Proposal includes allegations that may be considered at a hearing.

SI VOUS DÉSIREZ RECEVOIR CET AVIS EN FRANÇAIS, veuillez nous envoyer votre demande par courriel immédiatement à: contactcentre@fsrao.ca.

YOU ARE ENTITLED TO A HEARING BY THE FINANCIAL SERVICES TRIBUNAL (THE “TRIBUNAL”) PURSUANT TO SECTIONS 21(2), 21(3), 39(2), and 39(5) OF THE ACT. A hearing by the Tribunal about this Notice of Proposal may be requested by completing the enclosed Request for Hearing Form (Form 1) and delivering it to the Tribunal within fifteen (15) days after this Notice of Proposal is received by you. The Request for Hearing Form (Form 1) must be mailed, delivered, faxed or emailed to:

Address:
Financial Services Tribunal
25 Sheppard Avenue West, 7th Floor Toronto, Ontario
M2N 6S6

Attention: Registrar

Fax: 416-226-7750

Email: contact@fstontario.ca

TAKE NOTICE THAT if you do not deliver a written request for a hearing to the Tribunal within fifteen (15) days after this Notice of Proposal is received by you, orders will be issued as described in this Notice of Proposal. TAKE FURTHER NOTICE of the payment requirements in section 4 of Ontario Regulation 192/08, which state that the penalized person or entity shall pay the penalty no later than (thirty) 30 days after the person or entity is given notice of the order imposing the penalty, after the matter is finally determined if a hearing is requested or such longer time as may be specified in the order.

For additional copies of the Request for Hearing Form (Form 1), visit the Tribunal’s website at www.fstontario.ca

The hearing before the Tribunal will proceed in accordance with the Rules of Practice and Procedure for Proceedings before the Financial Services Tribunal (“Rules”) made under the authority of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, as amended. The Rules are available at the website of the Tribunal: www.fstontario.ca. Alternatively, a copy can be obtained by telephoning the Registrar of the Tribunal at 416-590-7294, or toll free at 1-800-668-0128 extension 7294.

At a hearing, your character, conduct and/or competence may be in issue. You may be furnished with further and or other particulars, including further or other grounds, to support this proposal.

REASONS FOR PROPOSAL

I. INTRODUCTION

These are reasons for the proposal by the Director to revoke the mortgage brokerage licence issued to 1813404 Ontario Corp. o/a CSI Mortgages (“CSI Mortgages”), and to revoke the mortgage broker licence of Hansel Patrick (“Patrick”).

Further, these are reasons for the proposal by the Director to impose administrative penalties in the total amount of $10,000 on CSI Mortgages and $4,000 on Patrick.

II. BACKGROUND

FSRA Licencing History

CSI Mortgages is currently licensed as a mortgage brokerage (licence # 12052) under the Act. It has been licenced since September 28, 2010.

Patrick has been licenced as a mortgage broker since at least July 1, 2008. Patrick has been an officer and director of CSI Mortgages since January 18, 2010. Patrick has been the principal broker (“PB”) of CSI Mortgages since October 7, 2010.

Anthony Ambrosio (“Ambrosio”) is currently licenced as a mortgage broker and has been an officer and director at CSI Mortgages since December 21, 2009.

At all material times, Patrick and Ambrosio have been the sole officers and directors of CSI Mortgages.

A. Failure to Maintain E&O Insurance

Section 42 of Ontario Regulation 188/08 requires a mortgage brokerage to maintain E&O insurance in a form approved by the Chief Executive Officer with extended coverage for loss resulting from fraudulent acts or to have some other form of assurance in a form approved by the Chief Executive Officer.

This E&O insurance must cover a minimum of $500,000 for any one occurrence and $1 million for all occurrences within a given year.

The Financial Services Regulatory Authority of Ontario (“FSRA”) has identified insurers who provide coverage in the approved form and made a list available to assist the sector in choosing a provider.

CSI Mortgages has not had E&O insurance in a form approved by FSRA since August 3, 2019. FSRA first became aware of CSI Mortgages’ lack of E&O insurance on January 10, 2022, when it submitted a surrender application stating that it no longer had valid E&O insurance. Prior to that, Patrick, on behalf of CSI Mortgages, falsely represented that CSI Mortgages had E&O insurance on its 2019 and 2020 Annual Information Returns (“AIR”).

FSRA is First Notified that CSI Mortgages Does Not Have E&O Insurance

In an attempt to rebrand CSI Mortgages and franchise, Ambrosio submitted a new mortgage brokerage application to FSRA for CSI Mortgages Inc. o/a CSI Mortgage Solutions (“CSI Mortgage Solutions”) on December 1, 2021.

Both Ambrosio and Patrick were listed as directors of CSI Mortgage Solutions and Patrick was listed as the PB.

On January 10, 2022, Patrick submitted an application to FSRA to surrender the mortgage brokerage licence of CSI Mortgages. On the application, the reason for the surrender was noted as “Registering new brokerage, for franchising and rebranding” [sic]. Patrick also disclosed in this surrender application that CSI Mortgages did not have valid E&O insurance.

In February 2022, in response to an inquiry from FSRA, Ambrosio advised that CSI Mortgages was surrendering its brokerage licence because its E&O insurance policy had expired and that no other insurer from FSRA’s approved list was willing to provide insurance to the brokerage, so they decided to rebrand and set up a new brokerage, i.e., CSI Mortgage Solutions.

On July 20, 2022, Patrick was advised by FSRA that the new brokerage application would be escalated for a suitability review. Patrick was also advised that such a review could result in a Notice of Proposal to refuse the application. Patrick withdrew the application for CSI Mortgage Solutions.

On March 22, 2023, CSI Mortgages withdrew its surrender application.

E&O Cancellation by Intact

On March 1, 2022, Ambrosio advised FSRA that CSI Mortgages did not discover that their E&O insurance policy was cancelled by their provider, Intact Insurance Company (“Intact”), until May 2021.

In fact, Intact confirmed to FSRA that it sent a cancellation notice via registered mail to CSI Mortgages’ address on file. The cancellation notice was dated July 4, 2019 and stated that the E&O insurance policy cancellation would be effective on August 3, 2019 due to a missed payment.

CSI Mortgages claimed that it took immediate action to arrange replacement E&O insurance in a form acceptable to the Chief Executive Officer from a provider on the list of insurers who offer such coverage, but due to the passage of time since the policy was cancelled, they were unsuccessful. As a result, CSI Mortgages decided to pursue rebranding in October 2021.

In a phone call with FSRA on June 10, 2022, Patrick advised that CSI Mortgages notified FSRA of the lack of E&O insurance when it was discovered in 2021. However, FSRA’s records indicate it first became aware that CSI Mortgages lacked E&O insurance in the January 10, 2022 surrender application.

B. False Statements on Annual Information Returns

2019 and 2020 AIRs

On March 22, 2020, Patrick submitted CSI Mortgages’ 2019 AIR for the 2019 calendar year (“2019 AIR”).

On March 23, 2021, Patrick submitted CSI Mortgages’ 2020 AIR for the 2020 calendar year (“2020 AIR”).

Both the 2019 and 2020 AIRs reported that CSI Mortgages had E&O insurance in place from Intact, policy # EA 5763715, with expiry dates of September 23, 2020 and September 23, 2021, respectively.

Further, Patrick attested on both AIRs, as PB of CSI Mortgages, that Patrick was aware that it is an offence to make a false statement to FSRA and that the information in the AIRs was true to the best of Patrick’s knowledge and belief.

The E&O insurance information submitted by Patrick on both AIRs was false as CSI Mortgages’ E&O insurance had been cancelled since August 3, 2019.

2021 AIR

On March 31, 2022, Patrick submitted CSI Mortgages’ 2021 AIR for the 2021 calendar year (“2021 AIR”).

CSI Mortgages was required to upload a copy of its current E&O policy with the 2021 AIR and therefore reported that CSI Mortgages’ E&O insurance had been cancelled.

C. Failure to Maintain FSRA Approved E&O Insurance

On January 16, 2023, Patrick submitted a “Mortgage Bankers/Brokers Professional Indemnity Insurance” policy to FSRA claiming it to be CSI Mortgages’ updated E&O insurance policy. Coverage began on August 5, 2022, approximately three years after the former policy lapsed. Further, the new policy does not appear to be in the approved form.

III. CONTRAVENTIONS OR FAILURES TO COMPLY WITH THE ACT

A. Failure to Maintain E&O Insurance

Section 42 of Ontario Regulation 188/08 provides that a brokerage shall maintain E&O insurance in a form approved by the Chief Executive Officer with extended coverage for loss resulting from fraudulent acts or shall have some other form of assurance in a form approved by the Chief Executive Officer.

The Director is satisfied that CSI Mortgages has contravened section 42 of Ontario Regulation 188/08 by failing to maintain proper E&O insurance in a form approved by the Chief Executive Officer since August 3, 2019.

Section 2(1) of Ontario Regulation 410/07 provides that the principal broker of a brokerage shall take reasonable steps to ensure that the brokerage, and each broker and agent authorized to deal or trade in mortgages on its behalf, complies with every requirement established under the Act.

The Director is satisfied that Patrick has contravened section 2(1) of Ontario Regulation 410/07 by failing to ensure CSI Mortgages maintained proper E&O insurance since August 3, 2019.

B. False Statements on Annual Information Returns

Section 2 of Ontario Regulation 193/08 provides that on or before March 31 of every year, every brokerage shall give the Chief Executive Officer an annual information return for the previous year in a form approved by the Chief Executive Officer.

Section 45(1) of the Act provides that no person or entity shall give false or misleading information to the Chief Executive Officer or a person designated by the Chief Executive Officer in respect of any matter related to this Act or the regulations.

Section 45(2) of the Act provides that no person or entity shall include false or misleading information in any document required to be created, stored or given to the Chief Executive Officer under this Act.

The Director is satisfied that both CSI Mortgages and Patrick contravened sections 45(1) and 45(2) of the Act by providing false information regarding CSI Mortgages’ E&O insurance on its 2019 and 2020 AIRs. This false information, provided repeatedly, concealed CSI Mortgages’ lack of E&O insurance from FSRA.

C. Failure to Notify the Chief Executive Officer

Section 13 of Ontario Regulation 193/08 provides that if E&O insurance or other assurance maintained by a brokerage or mortgage administrator in accordance with the applicable standards of practice is cancelled or is not renewed, the brokerage or mortgage administrator shall immediately notify the Chief Executive Officer.

CSI Mortgages advised FSRA staff that it had no E&O insurance more than two years after it had been cancelled. Accordingly, the Director is satisfied that CSI Mortgages contravened section 13 of Ontario Regulation 193/08 by failing to immediately notify the Chief Executive Officer that its E&O insurance had been cancelled.

IV. GROUNDS FOR REVOCATION OF LICENCE

Section 19(1) of the Act states that the Chief Executive Officer may, by order, revoke a licence in any of the circumstances in which he or she is authorized to suspend a licence.

According to section 18(1) of the Act, such circumstances are:
1. if the licensee ceases to satisfy the prescribed requirements for issuance or renewal, as the case may be, of the licence;
2. if the Chief Executive Officer 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 Chief Executive Officer considers appropriate;
3. if the licensee contravenes or fails to comply with a requirement established under this Act; or
4. if such other circumstances as may be prescribed.

The Director is satisfied that circumstances (a) and (c) are applicable to CSI Mortgages due to its failure to maintain proper E&O insurance since August 3, 2019, its failure to immediately notify the Chief Executive Officer, its false statements to the Chief Executive Officer in its 2019 and 2020 AIRs, and it currently continuing to operate despite not having proper E&O insurance in place.

The Director is satisfied that circumstance (c) applies to Patrick due to their failure to ensure CSI Mortgages maintained proper E&O insurance since August 3, 2019, their failure to immediately notify the Chief Executive Officer, their false statements to the Chief Executive Officer in CSI Mortgages’ 2019 and 2020 AIRs, and them currently continuing to operate CSI Mortgages despite not having proper E&O insurance in place.

The requirement for licensed mortgage brokerages to maintain E&O insurance, in a form acceptable to the Chief Executive Officer, is critical for the protection of the public, and must be strictly adhered to.

V. GROUNDS FOR IMPOSING ADMINISTRATIVE PENALTIES

The Director is satisfied that imposing administrative penalties on CSI Mortgages and Patrick under section 39 of the Act will satisfy one or both of the following purposes under section 38(1) of the Act:
1. To promote compliance with the requirements established under the Act.
2. 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 the Act.

The Director is satisfied that administrative penalties in the total amount of $10,000 should be imposed on CSI Mortgages as follows:
1. an administrative penalty of $5,000 for failing to maintain E&O insurance coverage contrary to section 42 of Ontario Regulation 188/08;
2. an administrative penalty of $1,000 for failing to immediately notify the Chief Executive Officer of its E&O insurance cancellation contrary to section 13 of Ontario Regulation 193/08; and
3. two administrative penalties of $2,000 each, totalling $4,000, for the provision of false statements to the Chief Executive Officer on two separate occasions contrary to section 45 of the Act.

The Director is satisfied that two administrative penalties of $2,000 each, in the total amount of $4,000, should be imposed on Patrick for providing false statements to the Chief Executive Officer on two separate occasions contrary to section 45 of the Act.

In determining the amount of administrative penalties, the Director has considered the following criteria as required by section 3 of Ontario Regulation 192/08:
1. The degree to which the contravention or failure was intentional, reckless or negligent.
2. The extent of the harm or potential harm to others resulting from the contravention or failure.
3. The extent to which the person or entity tried to mitigate any loss or take other remedial action.
4. 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.
5. 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.

In respect of the first criterion, the Director is satisfied that CSI Mortgages’ failure to maintain proper E&O insurance, failure to immediately notify the Chief Executive Officer, and provision of false statements on their AIRs was negligent. CSI Mortgages was aware, or ought to have been aware, that it was not making its monthly payments for E&O insurance after it had been cancelled.

In respect of the second criterion, the Director is of the belief that CSI Mortgages created a risk or potential risk of harm to the public, and continues to do so, by failing to have proper E&O insurance in place for its 15 active mortgage agents/brokers. CSI Mortgages failed to satisfy a critical regulatory requirement that is in place to protect the public. Consumers who may have valid claims against CSI Mortgages during the period it had no coverage, or inadequate coverage, may suffer harm if there is no insurance to recover under.

Further, with respect to the false statements on its AIRs, there is reputational harm to the sector and FSRA since FSRA relies on the honesty of its licensees to self- report accurate information on their AIRs and, in the case of maintaining proper E&O insurance, to immediately notify FSRA of a cancellation.

In respect of the third criterion, the Director has considered that CSI Mortgages tried to obtain proper E&O insurance beginning in May of 2021 and in August 2022 secured some coverage, not in a form approved by the Chief Executive Officer.

In respect of the fourth criterion, CSI Mortgages has saved approximately $3,600 it otherwise would have been required to pay in premiums for E&O insurance since, at least, July 2019.

In respect of the fifth criterion, the Director is not aware of any other contraventions under the Act or with any other financial services legislation of Ontario or of any jurisdiction during the preceding five years by CSI Mortgages or Patrick.

The Director is satisfied, having regarded all the circumstances, that the proposed amount of the penalties is not punitive in nature, and the amounts are consistent with one or both purposes of section 38 of the Act.

Such further and other reasons as may come to the attention of the Director.

DATED at Toronto, Ontario, June 20, 2023.

Original signed by

Elissa Sinha
Director, Litigation and Enforcement

By delegated authority from the Chief Executive Officer

Si vous desirez recevoir cet avis en français, veuillez nous envoyer votre demande par courriel immediatement a : contactcentre@fsrao.ca.