Guideline on co-brokering

Purpose

Licensees providing mortgage services have obligations under the Mortgage Services Act (MSA), Mortgage Services Regulation (Regulation), and Mortgage Services Rules (Rules) related to co-brokering. This guideline provides guidance for licensees entering a co-brokering relationship and highlights the potential risks associated with this type of arrangement. Topics include:

• understanding co-brokering arrangements 
• types of co-brokering activity 
• key considerations for licensees working in a co-brokering arrangement 

Additional information on co-brokering can be found on BCFSA’s Mortgage Services Knowledge Base.

Guidelines

Understanding co-brokering arrangements

The term “co-brokering” may be used in different ways within the mortgage services industry; however, the MSA Rules uses the term “co-brokering” for a particular context. For the purposes of the MSA, co-brokering is when two licensees work together on the same side of a mortgage or mortgage transactions to provide services to a common client. This may involve licensees from either the same brokerage or different brokerages. Licensees are permitted to co-broker a mortgage transaction with a person outside of B.C., if that other person is authorized under the laws of their jurisdiction, to provide mortgage services.

Importantly, co-brokering can’t be done outside of a licensee’s mortgage brokerage (e.g., it can’t be activity done “on the side”) and licensees cannot co-broker a mortgage with an unlicensed individual unless they that individual is exempted from the requirement to be licensed and/or otherwise authorized to perform mortgage services. If a mortgage broker or principal broker is co-brokering with another person outside of their brokerage, both brokerages must be aware, as well as any related principal brokers.

Co-brokering is different from a referral, where licensees receive or pay remuneration for passing along or obtaining contact information for potential clients (with the explicit consent of the client). Referrals do not involve any other activity associated with dealing in mortgages. Co-brokering is also different from a mortgage services team. Under the MSA, a team requires formal registration with BCFSA and must meet certain criteria in order to be registered. A group of two or more licensees is considered a team if it does any of the following while dealing or trading in mortgages:

• Represent themselves to the public as a single entity (other than a brokerage) 
• Regularly act as designated agents of the same client 
• Regularly work together in a manner that creates implied agency with the same party 

More information on mortgage services teams and mortgage referrals can be found on BCFSA’s Mortgage Services Knowledge Base.

Types of co-brokering activities

Co-brokering activities may include, but are not limited to:

• Meeting with borrowers 
• Taking mortgage applications 
• Conducting due diligence to confirm the identity of potential borrowers and to verify the application information provided to lenders 
• Obtaining required consents from clients to perform credit bureau searches 
• Submitting mortgage applications to lenders 
• Providing mortgage commitments to borrowers and ensuring that conditions are satisfied; 
• Ordering appraisals 
• Preparing disclosure documents and ensuring that they are reviewed and executed by required parties 

Key considerations for licensees in a co-brokering arrangement

Compliance

If a licensee co-brokers a mortgage transaction with another licensee, both licensees are responsible for ensuring that the mortgage transaction complies with the MSA, Regulations, and Rules, and any other applicable legislation. This includes ensuring the licensees comply with disclosure and record keeping requirements, including providing clear disclosure of representation. Both licensees in a co‐brokering arrangement are also equally liable for the mortgage transaction and will share regulatory responsibility for compliance issues, including ensuring that all duties to clients are met.

Disclosures

When licensees enter a co‑brokering arrangement, each licensee continues to hold independent responsibility for complying with all disclosure requirements under the MSA and Rules. Co‑brokering does not reduce or shift a licensee’s disclosure obligations; rather, it requires both licensees to coordinate to ensure that all required disclosures are made to the shared client and to any unrepresented parties involved in the transaction. This shared responsibility applies whether the co‑brokering arrangement is between licensees from the same brokerage or different brokerages.

Records

Section 105 of the Rules sets out the record keeping requirements related to co-brokering. If a licensee co-brokers a mortgage or mortgage transaction, their brokerage(s) must prepare and keep a record that contains the information required by the Superintendent, including ensuring that both parties appropriately maintain all records relevant to the transaction. In a co-brokered transaction, both mortgage brokerages are responsible for providing the required disclosures and maintaining mortgage records for at least seven (7) years after the last transaction in respect of the mortgage. As with any other mortgage transaction, licensees engaging in a co‑brokering transaction must ensure that all required records are maintained. While the co‑brokering transaction is carried out by licensees working together to provide mortgage services to a common client, the obligation to maintain records rests with each licensee’s brokerage. If the co-brokering licensees are both engaged by the same brokerage, it is acceptable for only one set of records to be maintained and retained. 

If a licensee co-brokers a mortgage or mortgage transaction, their mortgage brokerage must prepare and retain a record that contains the information provided in the Record Keeping Requirements for Co-Brokering regulatory statement on BCFSA’s Mortgage Services Knowledge Base. In addition to that information, most mortgage records include the following information:

• Signed copies of client service agreements 
• Signed copies of mortgage administration agreements 
• Mortgage applications 
• Property appraisals 
• Credit bureau reports and authorizations 
• Records confirming down payment information, such as bank statements, gift letters 
• Copies of client income tax records, such as Notices of Assessment, tax returns, T4 slips 
• Signed copies of all required disclosures 
• Receipts of monies from client 
• Any other relevant documentation or information relating to the transaction 

Confidentiality and conflicts-of-interest

Under the MSA, licensees owe clients a continued duty of confidentiality that survives the end of the agency relationship. In co‑brokered transactions both licensees must ensure that they meet this obligation independently and that the sharing of client information between co‑brokers complies with the client’s instructions and the MSA.

Importantly, confidentiality applies to both co‑brokers individually. The fact that two licensees are co‑brokering a file does not automatically create permission for unrestricted information sharing. When licensees co‑broker a mortgage transaction, they typically need to share information with one another to serve the common client. However, it is important to remember that:

• Each co‑broker must treat the client’s information as confidential 
• Information may only be shared to the extent necessary to provide the mortgage services the client has engaged them for 
• If a co‑broker intends to share information beyond what is reasonably required (e.g., providing full file access to the other brokerage’s administrative staff), the client’s written consent is required 

A client may choose to waive confidentiality if they believe that sharing certain information is to their benefit. A valid waiver must:

• Be in writing 
• Specify what information may be shared and with whom 
• Be retained according to MSA recordkeeping requirements by both co-brokers 

When licensees co‑broker a mortgage transaction, each licensee continues to have a duty to take reasonable steps to avoid conflicts of interest and to promptly disclose any direct or indirect interest they (or their associate or related party) have or may acquire in the mortgage transaction.

Because co‑brokering increases the number of participants involved in a transaction, it increases the likelihood that a conflict of interest may arise. Co‑brokers must therefore maintain heightened awareness of potential conflicts (e.g., one co‑broker’s associate acting as a private lender; one co‑broker having a financial interest in the property; fee‑splitting arrangements tied to specific lenders). More information on conflicts of interest can be found on BCFSA’s Mortgage Services Knowledge Base.

Applicable Section of Mortgage Services Act, its Regulations, or the Mortgage Services Rules

MSA

s. 32 [Records]

MSA Rules

s. 60 [Co-brokering with unlicensed person prohibited]

s. 61 [Responsibility for compliance]

s. 105 [Records related to co-brokering]

Part 3 – Licensee Standards of Conduct

• Division 2 – Duties to Clients