Ontario's financial services regulator is moving to revoke the licences of two mortgage brokerages after alleging that their principals failed to provide proof of the errors and omissions (E&O) insurance the businesses are legally required to carry.
The Financial Services Regulatory Authority of Ontario (FSRA) said October 2 that it had begun enforcement action against brokers Ruby Dhunna and Kanwaljit Dhunna, as well as 9379231 Canada Inc., operating as DLC RK Mortgages, and Platinum Mortgages Inc.
According to FSRA, the two brokers failed to provide proof of E&O coverage for DLC RK and for Platinum's mortgage brokerage. It separately alleges that Kanwaljit Dhunna failed to provide proof of E&O coverage for Platinum's mortgage administration business.
The respondents have requested a hearing before the Financial Services Tribunal, and the allegations have not been tested.
Under Ontario's mortgage brokerage rules, every licensed brokerage must hold E&O insurance in a form approved by FSRA, with extended coverage for losses caused by fraudulent acts. Coverage must be at least $500,000 per occurrence and $1 million for all occurrences in a 365-day period, covering the brokerage and every broker and agent working for it. Mortgage administrators face a separate E&O requirement under their own regulation.
FSRA said the obligation applies at all times, whether or not a business is actively brokering mortgages, and that it must be notified immediately if a policy is cancelled or not renewed. Coverage must come from an insurer on FSRA's approved list.
The regulator also warned that E&O held under real estate registration, or under the Insurance Act as an insurance broker or agent, does not cover mortgage brokering. FSRA said failure to comply can lead to an administrative penalty or licence revocation.
The E&O allegations are part of a broader set of claims. FSRA alleged the brokers failed to assist with an inquiry, obstructed the regulator, withheld or altered relevant material, and provided false or misleading information. It also alleged that they failed to ensure mortgages were suitable for borrowers and to disclose material risks, and that they missed annual filings.
FSRA further alleged that Kanwaljit Dhunna failed to remit payments to or on behalf of a borrower and did not file audited financial statements for the administration business. It alleged that Ruby Dhunna acted as a mortgage administrator without a licence and failed to disclose a conflict of interest.
FSRA is proposing to refuse to renew both brokers' licences, revoke the brokerage licences of DLC RK and Platinum Mortgages, revoke Platinum's mortgage administrator licence, and impose a $50,000 administrative penalty on Kanwaljit Dhunna.
An interim suspension bars DLC RK and Platinum's brokerage from dealing or trading in mortgages in Ontario until the hearing concludes.
The fraud extension in mortgage brokerage E&O exists for situations where client money or borrower interests are at risk through a broker's conduct. Without proof of that cover, borrowers and lenders who deal with a brokerage have less assurance that a claim would be paid if something went wrong.
For insurance professionals, the case is a reminder that the regulator treats proof of required coverage as a basic condition of licensing, cited here alongside far more serious alleged misconduct. It also shows that E&O doesn't carry across licences. An insurance broker who also arranges mortgages needs separate, FSRA-approved mortgage brokerage cover.
