Guideline on Disclosing and Managing Conflicts of Interest

Purpose

Licensees providing mortgage services have obligations under the Mortgage Services Act (MSA), Mortgage Services Regulation (Regulation), and Mortgage Services Rules (Rules) to identify, disclose, and appropriately manage conflicts of interest. This guideline explains when and how mortgage brokers must disclose actual, potential, or perceived interests they may have in a mortgage or mortgage transaction. It also provides guidance on the requirements and expectations related to conflict-of-interest disclosure and management, including:

• understanding conflicts of interest
• disclosure of interests to borrowers and lenders
• disclosure requirements and agency models and
• managing conflicts of interest

For more information on conflicts of interest and disclosure requirements, visit the BCFSA Mortgage Services Knowledge Base.

Guideline

Understanding conflicts of interest

Mortgage services licensees have specific duties to their clients, including taking reasonable steps to avoid conflicts of interest. Where a conflict cannot be avoided, licensees must disclose it to their client clearly, promptly, and in accordance with the requirements in the Rules.

An “interest” is any direct or indirect financial, ownership, business, or personal interest that a mortgage broker or brokerage has or may acquire in a mortgage or mortgage transaction.

Interests can arise through the mortgage broker or brokerage directly or through individuals or entities connected to them.

These connected individuals or entities are commonly referred to as “associates” or “related parties” and may include:

• co-workers or business partners
• immediate or extended family members
• companies or business entities they own, control, or have an interest in
• brokerage partners, officers, directors, or other principals
• trusts or estates in which they have a role or beneficial interest
• significant shareholders of a brokerage or lender
• any person or entity that can influence, or is influenced by, the mortgage broker or brokerage

Not every interest creates a conflict of interest. However, an interest may give rise to an actual, potential, or perceived conflict of interest if it could influence, or appear to influence, a mortgage broker’s judgment, recommendations, or ability to act in a client’s best interests.

Conflicts of interest create a risk that a mortgage broker’s professional judgment could be affected by their own interests or the interests of an associate or related party. For this reason, licensees must disclose all actual, potential, and perceived interests that a reasonable person might consider relevant to the transaction. Disclosure enables borrowers and lenders to make informed decisions about whether they consider the interest to create a conflict.

Direct and indirect interests

A direct interest exists when a benefit accrues directly to the mortgage broker or brokerage. An indirect interest exists when a benefit accrues to an associate or related party of the mortgage broker or brokerage.

Both direct and indirect interests may create conflicts of interest and may require disclosure.

Actual, potential, or perceived conflicts of interest

An actual conflict of interest exists when a mortgage broker’s personal, financial, business, or other interests interfere, or have the potential to interfere, with their duty to act in their client’s best interests or provide objective advice. For example, a mortgage broker may own shares in a private lending company and receive significantly higher compensation for placing clients with that lender. If the broker recommends that lender despite another lender offering more suitable terms or a lower interest rate, the broker’s financial interest creates an actual conflict of interest.

Similarly, a conflict may arise when a mortgage broker working with a borrower is also acting as the real estate professional involved in listing or selling the property. Because the individual stands to benefit financially from both aspects of the transaction, competing interests may affect their judgment.

A potential conflict of interest may exist when a current interest or relationship could reasonably develop into an actual conflict as the transaction progresses.

A perceived conflict of interest exists when a reasonable person could conclude that a mortgage broker’s judgment may be influenced by a personal, financial, or business interest, even if no actual conflict exists. For example, a mortgage broker may recommend a lender because they genuinely believe it offers the most suitable mortgage product for the client. However, if the lender is owned by a family member of the broker, a reasonable person could perceive that the recommendation was influenced by that relationship.

Licensees must disclose actual, potential, and perceived interests. The obligation to disclose does not depend on whether the interest ultimately affects the mortgage broker’s judgment. If a reasonable person could view the interest as creating a conflict of interest, the interest should be disclosed.

Disclosure of interests and conflicts of interest to borrowers and lenders

Mortgage brokers and brokerages, if applicable, must disclose any direct or indirect interest they have or may have in a mortgage transaction to both borrowers and lenders. This disclosure is required regardless of whether the borrower or lender is a client.

In mortgage transactions, conflicts of interest, whether real or perceived, often arise from relationships between parties involved in the mortgage transaction. It is clear in some situations where disclosure must be made, such as where the mortgage broker is personally related to a lender they recommend, or the mortgage brokerage has an ownership interest in a separate business they recommend. Other situations are more complex. If a mortgage broker is unsure whether a situation qualifies as a conflict of interest, they should disclose it.

Where an interest in a mortgage transaction exists or may arise, licensees must provide the required disclosure using the prescribed forms:

• Form 3A – Disclosure of Interests to Borrower, or

• Form 3B – Disclosure of Interests to Lender.

Disclosures must be clear, true, and not misleading, and must be provided within the timelines set out in the Rules and discussed below. Licensees should ensure clients understand the nature of the conflict, including whether the interest is direct or indirect.

Disclosure of interests does not include any remuneration the brokerage receives directly from their client, other parties to the mortgage transaction, or from other people they refer or recommend. That information is disclosed separately in Form 4 – Disclosure to Borrower of Expected Remuneration and, if applicable, Form 7 — Disclosure to Client of Remuneration, or in one of the form disclosure packages.

Disclosure of interests to borrowers

If a mortgage broker, or any associate or related party of theirs, has or may acquire a direct or indirect interest in a mortgage transaction, the broker must provide the borrower with a Form 3A – Disclosure of Interests to Borrower. Form 3A must: 

• be dated and signed by the broker and
• clearly disclose the interest in a manner that is true, plain, and not misleading

This disclosure must be given to the borrower as soon as possible, but no later than two business days before the borrower enters into a mortgage agreement or signs a mortgage instrument, whichever comes first. The borrower must acknowledge receipt of the disclosure by signing the form and the licensee must keep a copy for their records and provide a copy to the borrower.

There are no exceptions to providing Form 3A – Disclosure of Interests to Borrower, and it must be provided in all mortgage transactions involving borrowers.

The following are examples of interests a broker would have to disclose to a borrower:

• The broker has a family member that works for a lender they recommend.
• The brokerage shares ownership with a lender they recommend (e.g., officers/directors, management).
• The brokerage owns more than 10 per cent of the voting shares of a lender they recommend.
• A director, officer, partner, or shareholder of the brokerage has a financial interest in a lender involved in the transaction.
• An associate or related party, including a spouse or family member, has a financial interest in the mortgage transaction.

In these circumstances, the relationship or financial interest may influence, or reasonably appear to influence, the broker’s judgment or recommendations and must therefore be disclosed.

Disclosure of interests to lenders

If a mortgage broker, or any associate or related party of theirs, has or may acquire an interest in a mortgage transaction, the broker must provide every lender involved in the transaction with a Form 3B – Disclosure of Interests to Lender Form.

Form 3B must be provided at the applicable stage of the transaction:

1. Before delivering to a borrower the lender’s offer to lend
2. Before or at the time of delivering to the lender a borrower’s offer to borrow
3. Before delivering an offer by the lender to purchase an interest in a mortgage from a seller or
4. Before or at the time of delivering an offer to sell an interest in a mortgage to the lender

There is one exception to the requirement to provide Form 3B. Form 3B is not required if an offering memorandum or prospectus has been provided to every lender involved in the mortgage transaction in accordance with the Securities Act, and that document contains the required conflict-of-interest disclosure. However, if the offering memorandum or prospectus does not satisfy the conflict-of-interest disclosure requirements under the Rules, additional disclosure may still be required.

Disclosure packages

Instead of using Forms 3A or 3B, brokers may use an applicable disclosure package. These packages consolidate the disclosure requirements under sections 70 to 75 of the Rules, including disclosure of interests.

There are four disclosure packages available for Brokers to use:

1. Disclosure to represented borrowers: for borrowers who are clients of the broker.
2. Disclosure to represented lenders: for lenders who are clients of the broker.
3. Disclosure to unrepresented borrowers: for borrowers who are not clients of the broker.
4. Disclosure to unrepresented lenders: for lenders who are not clients of the broker.

Where a disclosure package is used, brokers should ensure that all required disclosures relating to interests and conflicts of interest are fully completed and provided within the applicable timelines.

Disclosure requirements and agency models

Mortgage brokerages can operate under one of two types of agency models:

1. brokerage agency
2. designated agency

The agency model a brokerage uses affects whose interests must be disclosed when determining whether a conflict of interest exists.

Brokerage agency

Under a brokerage agency model, both the brokerage and all mortgage brokers acting on its behalf owe the same client duties to the client, including the duties set out in section 38 of the Rules.

As a result, conflict-of-interest disclosure obligations extend beyond the individual broker handling the transaction. Interests held by the brokerage, other brokers within the brokerage, and applicable associates or related parties may need to be disclosed if they create an actual, potential, or perceived conflict of interest.

Designated agency

Under a designated agency model established under section 40 of the Mortgage Services Rules, the brokerage assigns one or more specific brokers to act as the client’s agent. Those designated brokers owe client duties to the client, while other brokers within the brokerage generally do not.

Although the brokerage continues to have supervisory obligations and must treat the interests of all clients in an even-handed, objective, and impartial manner, its client duties are more limited than under a brokerage agency model.

Consequently, disclosure obligations generally focus on the interests of the designated broker and their associates or related parties, rather than the interests of the brokerage as a whole.

More information on agency and dual agency, can be found on BCFSA’s Mortgage Services Knowledge Base.

The following chart shows the difference between disclosure of interests under the brokerage agency model versus the designated agency model.

Agency Model	Broker disclosure required	Brokerage disclosure required
Brokerage Agency (broker and brokerage have same client duties)	Yes. This means disclosing direct or indirect interests of: Broker (including companies or business entities they own or control), Related parties or associates (including co-workers or business partners, immediate and extended family, etc.), and People who control the brokerage (e.g., partners, directors, officers, significant shareholders).	Yes. This means disclosing direct or indirect interests of: The people who control the brokerage (e.g., partners, directors, officers, significant shareholders), and Their related parties or associates (co-workers or business partners, immediate and extended family, etc.)
Designated Agency (limited brokerage client duties)	Yes (same as brokerage agency, above)	No, brokerage disclosure is not required under designated agency

As a summary:

• Under the designated agency model, the broker must disclose their interests and any interests of their related parties and associates, which includes brokerage partners, directors, and other controlling persons.

• Under the brokerage agency model, the broker would have to disclose their interests and any interests of their related parties and associates, as well as the brokerage interests and any interests of their related parties and associates.

Managing conflicts of interest

Anticipating and avoiding conflicts of interest between clients

Mortgage services licensees will often provide mortgage services to more than one client at the same time. In most cases, acting for multiple clients does not create a conflict of interest. However, conflicts can arise where the interests of those clients compete or where a licensee, the brokerage, or an associate or related party has a direct or indirect interest in a mortgage transaction.

Licensees must take reasonable steps to identify, anticipate, and avoid conflicts of interest wherever possible. Where a conflict cannot be avoided, licensees must clearly, fully, and promptly disclose the conflict in accordance with the Rules.

Licensees should actively consider whether acting for multiple clients could create an actual or perceived conflict of interest. Conflicts may arise, for example, where:

• a borrower’s interests compete with those of another client of the licensee or brokerage or
• a licensee represents multiple parties in the same mortgage transaction in a manner that could compromise the ability to act in a client’s best interests.

Before agreeing to act for a new client, licensees should assess whether that client’s interests could reasonably conflict with the interests of existing clients. Where a conflict is likely or unavoidable, licensees should consider whether declining the engagement or referring the client to another licensee is appropriate.

Consider what is in clients’ best interests

Licensees must always act in the best interests of their clients when providing mortgage services. Where a potential or actual conflict of interest arises, particularly when dealing with multiple clients, licensees should carefully assess whether they can continue to meet their duty to act in each client’s best interests.

In many cases, conflicts of interest cannot be appropriately managed simply through disclosure. Where continuing to act would place a licensee’s ability to act in a client’s best interests at risk, the licensee should take steps to avoid the conflict. This may include declining to act for a new client or ceasing to act for one or more existing clients in respect of the mortgage transaction.

When determining how to proceed in situations involving multiple clients or competing interests, licensees should consider the following:

• Brokerage policies and supervision: Whether the brokerage has established policies and procedures for identifying, managing, and disclosing conflicts of interest, and whether those policies support an appropriate course of action.
• Ability to act in the client’s best interests: Whether the licensee can continue to act in the best interests of one or more clients without being influenced by competing duties, interests, or relationships.
• Client vulnerability and access to services: Whether any client may face challenges obtaining alternative mortgage services, and how this may affect the decision to continue or cease acting.
• Confidential information: Whether the licensee holds confidential information about one client that could affect their ability to act in the best interests of another client. Whether that information could realistically be set aside, and whether that information could be used, even unintentionally, to the advantage or disadvantage of a client.
• Transparency with clients: Whether the licensee has clearly explained the nature of the conflict, the potential impacts, and how their duties to each client may change depending on how the situation is resolved.
• Availability of alternative representation: Whether other licensees are available to provide mortgage services to one or more of the clients.
• Licensee motivations: Whether the decision to continue acting for a particular client could be influenced by the licensee’s own interests (for example, anticipated remuneration, ongoing business relationships, or reduced risk), rather than the best interests of the client.

Ending the client relationship due to a conflict of interest

If the conflict between clients develops and cannot be appropriately managed through disclosure, and it does not qualify for an exception to the prohibition on dual agency, licensees must cease acting for one or more clients using the prescribed Form 9: Agreement Regarding Conflict of Interest Between Clients.

This form explains the situation and what the person’s options are, and it encourages them to see independent professional advice before deciding how to proceed.

Where a client relationship is ended due to a conflict of interest, licensees should take reasonable steps to minimize disruption.

For more information on conflicts of interest and dual agency, visit the BCFSA Mortgage Services Knowledge Base.

Re‑engaging a former client

Where a client relationship has ended due to a conflict of interest, licensees should carefully assess whether it is appropriate to re‑engage that individual in a new mortgage transaction. In some circumstances, a licensee may enter a new client relationship with a former client in respect of a different transaction. However, licensees have an ongoing duty to take reasonable steps to avoid conflicts of interest and should consider whether re‑engagement could give rise to similar or recurring conflicts.

Licensees should only re‑engage a former client where they are satisfied that doing so is unlikely to create a new conflict of interest that cannot be appropriately avoided or managed. Where there is a reasonable likelihood that re‑engagement would lead to competing client interests or recurring conflicts, licensees should decline to act or consider whether a referral to another licensee is appropriate.

Principal broker considerations

Principal brokers have an important role in helping their brokerage identify, manage, and disclose conflicts of interest. Conflicts of interest can create risks for clients and may affect a licensee’s ability to act in a client’s best interests. This is especially important when a licensee is working with more than one client in the same transaction or interacting with an unrepresented party.

As the person responsible for the brokerage’s day-to-day operations, a principal broker must ensure there is effective oversight of mortgage brokers, employees, and anyone acting on behalf of the brokerage.

Principal brokers should:

• make sure licensees understand their obligations to identify, avoid, and disclose conflicts of interest
• encourage licensees to raise real or potential conflicts as early as possible
• stay informed about the services licensees are providing, particularly in complex or higher-risk transactions

Policies and procedures

Principal brokers should have policies and procedures in place to help licensees identify and manage conflicts of interest. These should address:

• how to determine when and whether a licensee can act for more than one client in a transaction (dual agency)
• how to interact with unrepresented parties, including when and how to use required disclosure forms
• when clients should be referred to another licensee, either within or outside the brokerage, because a conflict cannot be appropriately managed
• how conflict-of-interest decisions and disclosures should be documented

Principal brokers should also ensure that licensees receive training and apply these policies consistently.

Providing guidance and oversight

Licensees should be expected to bring real or potential conflicts of interest to the principal broker’s attention at an early stage.

When a conflict raises significant risk or there is uncertainty about how it should be handled, the principal broker should provide guidance on whether the licensee should:

• continue to act in the transaction
• limit their involvement or
• withdraw from the transaction

Principal brokers should also help ensure that similar situations are handled consistently across the brokerage.

Addressing misconduct

Principal brokers must take reasonable steps to address misconduct or conduct unbecoming within the brokerage. If a principal broker becomes aware of serious misconduct, they must promptly notify the Superintendent under s. 31(4) of the Rules.

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

MSA Rules

s. 1 definitions of “associate” and “related party”

s. 38 (g) and (h) [Duties to clients]

s. 74 [Conflict of interest – disclosure statement to borrowers]

s. 75 [Conflict of interest – disclosure statement to lenders]

s. 76 [restriction on dual agency]

s. 77 [dual agency in underserved location]

s. 78 [dual agency for affiliates or related parties]

s. 79 [Addressing conflicts of interest when acting for multiple clients]