Guideline on mortgage administration service agreements

Purpose

This guideline provides guidance to licensees on the use of mortgage administration service agreements required under the Mortgage Services Act (MSA) and the Mortgage Services Rules (Rules). The guideline provides information on the following topics:

• requirement to have a mortgage service agreement 
• informed client consent 
• disclosures and service agreements 
• payment to lenders 
• amendments to mortgage administration service agreements 
• record keeping requirements 

This guideline should be read in conjunction with the MSA, the Rules, and other applicable BCFSA regulatory instruments. More information and guidance can be found on BCFSA’s Mortgage Services Knowledge Base.

Guidelines

Requirements to have a mortgage administration service agreement

Section 80 of the Rules requires that, subject to the limited exceptions described below, a licensee must not administer, or arrange for another person to administer, a mortgage on behalf of one or more persons with an interest in the mortgage unless a written service agreement is in place. Section 80 defines a service agreement as an agreement between a mortgage brokerage and a client under which a licensee provides mortgage services to or on behalf of the client.

The MSA and Rules set out minimum content requirements for mortgage administration service agreements. Information on these requirements can be found in Regulatory Statement 26-024: Content Requirements for Mortgage Administration Service Agreements on BCFSA’s Mortgage Services Knowledge Base.

Per section 80(3) of the Rules, a written service agreement is not required where a licensee administers, or arranges for a person to administer, a mortgage on behalf of:

• A permitted person¹; or
• The licensee’s related mortgage brokerage (meaning the mortgage brokerage with which the licensee is licensed).

^{1 Under the Rules, a permitted person means any of the following:}

^{(a) the government of Canada or the government of a province or an agency of any of those governments;}

^{(b) a municipality, regional district, public board or commission in Canada;}

^{(c) a savings institution;}

^{(d) cooperative credit society as defined in the Cooperative Credit Associations Act (Canada) or a financial services cooperative as defined in the Act Respecting Financial Services Cooperatives (Quebec);}

^{(e) the Business Development Bank of Canada;}

^{(f) a pension fund that is regulated by the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension supervisory authority;}

^{(g) an insurance company;}

^{(h) a trust company or insurer authorized under the laws of Canada or of a province other than British Columbia to carry on business in Canada or that province;}

^{(i) a person registered under the Securities Act or the securities legislation of another province as a dealer or its equivalent, acting as principal or as an agent or trustee for accounts that are fully managed by the person;}

^{(j) person registered under the Securities Act or the securities legislation of another province as a portfolio manager or its equivalent, acting as principal or as an agent or trustee for accounts that are fully managed by the person;}

^{(k) an investment fund, if the investment portfolio of the fund is managed by a person who is registered under the Securities Act or the securities legislation of another province as a portfolio manager or its equivalent;}

^{(l) a person or trust that acquires mortgages or interests in mortgages for the purpose of offering, as a security as defined in the Securities Act, interests in a pool of those mortgages or interests in mortgages;}

^{(m) a subsidiary, as defined in the Business Corporations Act, of a person or entity referred to in any of paragraphs (c) to (l);}

^{(n) a person or entity in a foreign jurisdiction that is similar to an entity referred to in any of paragraphs (c) to (m); or}

^{(o) any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency of that government.}

Informed client consent

Licensees must take reasonable steps to ensure that a client provides informed consent before entering into a mortgage administration service agreement. Informed consent requires that clients understand the material terms of the service agreement and the consequences of entering into it. Licensees should take reasonable steps to ensure that clients:

• Have an opportunity to review the agreement 
• Understand their obligations and the licensee’s obligations 
• Understand remuneration, costs, and decision‑making responsibilities 

Where service agreements contain complex or non‑standard terms, licensees should consider recommending independent legal advice.

Disclosures and service agreements

A mortgage administration service agreement does not constitute a disclosure under the MSA. Licensees must ensure that all disclosures required under the MSA, Regulation, and Rules are provided in accordance with applicable requirements. Disclosures required under the MSA must generally be:

• In writing 
• Separate from the mortgage administration service agreement and from any agreement giving effect to a mortgage transaction 

Licensees must ensure that disclosures are provided in the form required by the Superintendent and at the appropriate time, even where similar information appears in a service agreement.

More information and guidance on disclosure requirements can be found on BCFSA’s Mortgage Services Knowledge Base.

Payment to lenders

Where a mortgage administrator receives funds paid by or on behalf of a borrower in respect of a mortgage, the licensee must promptly pay the lender the full amount received, less any amount the licensee is entitled to retain in accordance with the mortgage administration service agreement. Licensees must ensure that the handling and remittance of such funds complies with the MSA, Regulation, and Rules, including applicable trust account requirements.

Amendments to mortgage administration service agreements

If there is a change to the scope of mortgage services, or to the responsibilities of the parties, remuneration, costs, or decision-making authority, the mortgage administration service agreement must be amended to reflect those changes and to ensure continued compliance with the MSA. Any amendment to a service agreement must be made in writing, must clearly describe the changes being made, and must be dated and signed by all parties to the agreement.

Licensees are responsible for understanding the purpose and effect of all terms included in a service agreement, including any amendments. The use of custom clauses or modifications to a standard agreement may introduce legal or regulatory risk where such terms are unclear, inconsistent, or ineffective. Where an amendment introduces complex or non-standard terms, licensees should recommend that the parties obtain independent legal advice.

Record keeping requirements

Mortgage brokerages must prepare and retain mortgage administration service agreements, as well as any related records that establish the scope of the brokerage’s authority to provide mortgage services to or on behalf of a client, in accordance with the MSA. These records must be retained for a period of at least 7 years after the last transaction in respect of the mortgage, unless a shorter period is authorized in writing by the Superintendent. Mortgage brokerages must ensure that such records are complete, accurate, securely stored, and are protected against loss, destruction, and unauthorized access, use, or disclosure.

More information on record keeping requirements can be found on BCFSA’s Mortgage Services Knowledge Base.

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

MSA Rules

s. 67 [Disclosures under this Division]

s. 80 [Written service agreement required in some cases]

s. 82 [Amount of payment to lender]

a. 100 (1) (b) [General records]