Guideline on identity verification and transaction integrity

Purpose

Licensees providing mortgage services have obligations under the Mortgage Services Act (MSA), Mortgage Services Regulation (Regulation), and Mortgage Services Rules (Rules) related to verifying the identity of clients and other parties involved in mortgage transactions, assessing legal authority to enter into and participate in transactions, evaluating the reliability of information provided, and identifying circumstances that may indicate fraud, misrepresentation, or other unlawful activity.

This guideline outlines regulatory expectations and provides guidance to licensees on processes for verifying identity and promoting transaction integrity throughout the mortgage transaction lifecycle. Robust processes are critical not only to confirming the identity of individuals and entities involved in mortgage transactions, but also to ensuring that parties have the authority to act, that information relied upon is accurate and complete, and that licensees do not facilitate unlawful transactions. Effective identity verification and transaction integrity practices help prevent fraud, support anti-money laundering and anti-terrorist financing efforts, protect consumers and market participants, and maintain confidence in the integrity and lawfulness of British Columbia’s mortgage market.

Guidelines

General duty to verify identity and related transaction integrity obligations

Before providing mortgage services to or on behalf of a client, a licensee must verify the identity of the client and any personal or legal representative of that client (including their authority to represent and act on behalf of the client). Even where the individual or entity is not a client, licensees must take reasonable steps to verify the identity of each borrower and lender to whom they intend to present a mortgage transaction for consideration, including the identity of any personal or legal representative of the borrower or lender. Under the MSA, an exception to this is if the borrower or lender is a client of another licensee.

Licensees should recognize that their obligations extend beyond identity verification alone. In accordance with sections 43 to 45 of the Mortgage Services Rules, licensees must also:

• refuse to participate in, facilitate, or continue acting in relation to a mortgage transaction that they know, or reasonably ought to know, is unlawful
• take reasonable steps to determine that a borrower or seller has the legal authority and capacity to enter into the mortgage transaction and to deal with the property or mortgage in question
• take reasonable steps to assess the accuracy, completeness, and consistency of information contained in mortgage applications, mortgage sale documentation, and other transaction records
• escalate concerns to prospective lenders where information appears inaccurate, misleading, fraudulent, or inconsistent with other information obtained during the transaction.

These obligations are interconnected. Verifying a person’s identity does not relieve a licensee of the obligation to assess whether the person has the legal authority to act, whether information relied on in the transaction is accurate, or whether there are indicators of fraud, misrepresentation, or other unlawful activity.

A licensee must inform the borrower or lender in writing if they are unable to verify the identity of another party to the mortgage transaction at each of the following stages of a mortgage transaction:

• before submitting the borrower’s application or renewal agreement to the lender
• before the borrower enters into an agreement with the lender
• before the lender enters into an agreement to buy, sell, or exchange the mortgage
• before the transaction is completed

A licensee’s inability to verify the identity of a borrower, lender, or other party to a mortgage transaction may indicate an elevated risk of fraud, misrepresentation, or other unlawful activity. While section 42(4) recognizes that a transaction may proceed before identity has been verified in certain circumstances, licensees should carefully assess the risks associated with continuing to act in the transaction by communicating the situation with their principal broker and potentially seeking independent legal advice. In determining whether to continue acting, licensees should consider their obligations under sections 43 to 45 of the Mortgage Services Rules and whether the circumstances raise concerns regarding the lawfulness of the transaction, a party’s legal authority, or the reliability of information being relied upon in the transaction.

Relationship to PCMLTFA Requirements

As noted, licensees have obligations under both the MSA and federal PCMLTFA. Licensees must ensure their identity verification processes satisfy both regimes concurrently.

Under the PCMLTFA, licensees must identify persons and entities in prescribed circumstances, including:

• suspicious transactions
• large cash or virtual currency transactions
• receipt of funds record
• mortgage loan and information records
• other prescribed records

For additional information on PCMLTFA requirements, see the related FINTRAC guidance.

Verifying the identity of a person

Licensees must use authentic, valid, and current information to verify the identity of a person. Acceptable methods align with FINTRAC guidance for verifying persons or entities.

General expectations

Regardless of method used to verify the identity of a person, licensees should:

• identify inconsistencies or red flags
• take additional steps where risk is higher (e.g., non-face-to-face transactions)
• maintain records of how identity was verified

Where a licensee identifies inconsistencies, unusual circumstances, or other red flags during the identity verification process, they should take reasonable steps to resolve the concern before proceeding. Depending on the circumstances, this may include obtaining additional information, using an alternative verification method, consulting the brokerage’s compliance officer, informing the client or lender of the risks associated with proceeding, or determining whether it is appropriate to continue acting in the transaction. Licensees must also consider whether the circumstances give rise to any reporting obligations under the PCMLTFA.

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

MSA Rules

s. 41 [Duty to verify identity]

s. 42 [Duty to verify other party’s identity]

s. 65 [Duty to verify identity of client and representative of client];

Related Links

• FINTRAC: Methods to Verify the Identity of Persons and Entities