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

AND IN THE MATTER OF Ismail Ayyoub.

NOTICE OF PROPOSAL TO IMPOSE ADMINISTRATIVE PENALTIES

TO: Ismail Ayyoub  

TAKE NOTICE THAT pursuant to sections 38 and 39 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 impose five (5) administrative penalties on Ismail Ayyoub of $6,000 each, totaling $30,000, for contravening section 3 of Ontario Regulation 187/08 by causing Mortgage Smart Inc. to contravene subsections 24(1), 25(1) and 27(1) of Ontario Regulation 188/08.

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 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 15 (fifteen) 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 W, Suite 100
Toronto, ON 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 states 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

1. These are the reasons for the proposal by the Director to impose five (5) administrative penalties in the total amount of $30,000 on Ismail Ayyoub (“Ayyoub”).

II. BACKGROUND

A. Parties

2. Ayyoub was licensed as a mortgage agent (licence #M21002832) under the Act beginning on July 12, 2021, until the expiry of his licence on March 31, 2022.
3. In 2021, Ayyoub was employed as a mortgage agent at Mortgage Smart Inc. (“Mortgage Smart”), a licenced mortgage brokerage under the Act. The licence issued to Mortgage Smart was revoked on February 19, 2025.
4. At all material times, Ayyoub was authorized to deal and trade in mortgages by and on behalf of Mortgage Smart.

5. In 2021, Ayyoub, while acting for and on behalf of Mortgage Smart, arranged five mortgages for DL, SC, RR/JR, MA, and SW (collectively, the “Borrowers”).
6. The Borrowers had prior mortgages registered on their residential properties.
7. All of the mortgages arranged for the Borrowers were funded by Canada’s Choice Investments Inc. (“CCI”), a private lender. The sole Director and President of CCI is Ayyoub’s brother.
8. While arranging the mortgages for the Borrowers, Ayyoub did not take reasonable steps to determine if the mortgages arranged for the Borrowers were suitable and did not disclose, in writing, to the Borrowers the specific material risks associated with the mortgages or his conflict of interest with the lender, CCI.
9. The mortgages arranged by Ayyoub ranged from $100,000 for MA to $475,000 for DL/EL. The mortgages were secured on the Borrowers’ residential properties.
10. The annual incomes of the Borrowers ranged from $30,000 to $46,000. SC, RR/JR, and MA were senior citizens. The application forms for the Borrowers’ mortgages identified all of the Borrowers as retired.
11. With respect to each of the Borrowers’ mortgages,
    1. The term of the mortgage was 1 year with an annual interest rate of 25% with interest-only payments;
    2. The entire principal amount was to become due after the expiry of the 1-year term; and
    3. The mortgages had high cost of borrowing, and the disclosed Annual Percentage Rate (“APR”) ranged from 34.26% to 39%.
12. Ayyoub, in his interview with FSRA on August 25, 2024, (the “IA Interview”) stated that he never interacted or communicated with the Borrowers.

13. The written disclosure of material risks provided to each of the above Borrowers did not state any transaction specific risks which took into account the onerous nature of certain mortgage terms as well as the profile and circumstances of the Borrowers. The disclosure only stated as follows:

    “The brokerage has reviewed with the borrower the general risks associated with a mortgage commitment. These risks include: risk of falling into arrears, default and foreclosure, prepayment penalties etc.”

14. Furthermore, the written disclosure provided to each of the Borrowers did not disclose any conflicts of interest, and did not disclose Ayyoub’s relationship to the lender.

III. CONTRAVENTIONS OR FAILURES TO COMPLY WITH THE ACT

A. Failure to Take Reasonable Steps to Ensure Suitability

15. Subsection 24(1) of Ontario Regulation 188/08 provides that a brokerage shall take reasonable steps to ensure that any mortgage or investment in a mortgage that it presents for the consideration of a borrower is suitable for the borrower having regard to the needs and circumstances of the borrower.
16. Section 3 of Ontario Regulation 187/08 provides that a mortgage broker or agent shall not do or omit to do anything that might reasonably be expected to result in the brokerage on whose behalf he or she is authorized to deal or trade in mortgages to contravene or fail to comply with a requirement established under the Act. This provision is also relevant to Sections III.B. and III.C. of this proposal below.
17. Ayyoub, while dealing in mortgages on behalf of Mortgage Smart, failed to take sufficient steps to ensure that the mortgages he arranged were suitable for the Borrowers. Several suitability concerns were apparent from the mortgage documents:
    1. All but two of the Borrowers were senior citizens and all of the Borrowers had modest incomes and identified as retired;
    2. The mortgages were secured on the Borrowers’ residential properties, which were also their main assets, thereby compounding the negative consequences of default;
    3. The payments on mortgages exceeded or came close to exceeding the monthly incomes of the Borrowers;
    4. All of the mortgages were for 1-year terms. It was evident from the income and assets stated in the mortgage applications prepared by Ayyoub that it was very unlikely that the Borrowers could repay the mortgage amount at the end of the term;
    5. The total disclosed cost of borrowing of the 1-year term mortgages exceeded the annual income of the Borrowers; and
    6. A significant portion of the mortgage proceeds were deducted at closing as prepayment of interest.
18. The Director is satisfied that Ayyoub contravened section 3 of Ontario Regulation 187/08 by failing to take reasonable steps to ensure that the mortgages he presented to the Borrowers were suitable for them, causing Mortgage Smart to contravene subsection 24(1) of Ontario Regulation 188/08.

B. Failure to Disclose Material Risks

19. Subsection 25(1) of Ontario Regulation 188/08 provides that a brokerage shall disclose in writing to a borrower the material risks of each mortgage or investment in a mortgage that the brokerage presents for the consideration of the borrower.
20. Section 33 of Ontario Regulation 188/08 requires written disclosure to be expressed in plain language that is clear and concise and presented in a manner that is logical and likely to bring the information to the attention of the person intended to receive it.
21. The written disclosure prepared by Ayyoub did not specifically identify and disclose any risks based on the onerous terms of the mortgages or the circumstances of the Borrowers. Ayyoub did not take any steps to explain or disclose these specific risks to the Borrowers.
22. Detailed disclosure was especially important in the relevant circumstances which involved short-term high interest private mortgages.
23. The Director is therefore satisfied that Ayyoub contravened section 3 of Ontario Regulation 187/08 by failing to disclose all material risks to the Borrowers, causing Mortgage Smart to contravene subsection 25(1) of Ontario Regulation 188/08.

C. Failure to Disclose Conflicts of Interest

24. Subsection 27(1) of Ontario Regulation 188/08 provides that a brokerage shall disclose in writing to a borrower any conflict of interest or potential conflict of interest that the brokerage or any broker or agent authorized to deal or trade in mortgages on its behalf may have in connection with a mortgage or a trade in a mortgage that the brokerage presents for the consideration of the borrower.
25. Subsection 27(2) of Ontario Regulation 188/08 provides that a brokerage shall obtain the written acknowledgement of the borrower with respect to such disclosure.
26. Ayyoub did not disclose in writing to the Borrowers that Ayyoub’s brother was the sole Director and President at CCI, the lender in all of the relevant mortgage transactions.
27. The Director is satisfied that Ayyoub contravened section 3 of Ontario Regulation 187/08 by failing to adequately disclose conflicts of interest, causing Mortgage Smart to contravene subsection 27(1) of Ontario Regulation 188/08.

IV. GROUNDS FOR IMPOSING ADMINISTRATIVE PENALTIES

28. The Director is satisfied that imposing administrative penalties on Ayyoub under subsection 39(1) of the Act will satisfy one or both of the following purposes under subsection 38(1) of the Act:
    1. To promote compliance with the requirements established under the Act.
    2. To prevent a person from deriving, directly or indirectly, any economic benefit as a result of contravening or failing to comply with a requirement established under this Act.
29. In determining the amount of the administrative penalties below, the Director has considered the following criteria as required by subsection 3(1) 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.
30. The Director is satisfied that 5 administrative penalties totaling $30,000 should be imposed on Ayyoub for contravening section 3 of Ontario Regulation 187/08 by causing Mortgage Smart to contravene subsections 24(1), 25(1), and 27(1) of Ontario Regulation 188/08.
31. In determining the above stated amounts of administrative penalties, the Director has considered the criteria listed in section 3(1) of Ontario Regulation 192/08.
32. In respect of the first criterion, the Director is satisfied that Ayyoub’s repeated misconduct was intentional. As a licensee, Ayyoub was aware of his obligations, however:
    1. Ayyoub did not take any steps to meet with the Borrowers to determine the suitability of their respective mortgages;
    2. Although Ayyoub was at least aware of the age and financial circumstances of the Borrowers, he failed to take reasonable steps to ensure that the Borrowers’ mortgages were suitable;
    3. Ayyoub failed to disclose specific material risks to the Borrowers in respect of the mortgages arranged for them; and
    4. Ayyoub failed to disclose his conflict of interest, which he was aware of or ought to have been aware of, to the Borrowers.
33. In respect of the second criterion, the Director is satisfied that Ayyoub’s pattern of intentional and negligent misconduct has caused or has the potential to cause significant harm to the Borrowers.
34. Several of the Borrowers were senior citizens, and all of them were retired with modest incomes. The mortgaged properties were their primary residences. The severe consequences of default, which may include all of the Borrowers losing possession of their primary residence, make the mortgage terms especially unsuitable and the misconduct related to the mortgages particularly egregious.
35. Furthermore, Ayyoub’s misconduct, as a licensee under the Act, has the potential to harm public confidence in the regulatory regime established by the Act and its regulations.
36. In respect of the third criterion, the Director is unaware of any steps taken by Ayyoub to remedy the contraventions described in this proposal.
37. In respect of the fourth criterion, the economic benefit gained by Ayyoub as result of the contraventions described in this proposal is unknown.
38. In respect of the fifth criterion, the Director is unaware of any further contraventions or failures to comply in the preceding five years by Ayyoub other than those discussed in this Notice of Proposal.
39. The Director is satisfied, having considered all the circumstances, that the proposed amount of the penalty is not punitive in nature, and the amount is consistent with one or both purposes of section 38 of the Act.
40. Such further and other reasons as may come to the attention of the Director.

DATED at Toronto, Ontario, February 28, 2025.

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.