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Financial Regulation - Financial Services Regulatory Authority (FSRA). Harold the Mortgage Closer Inc. v. Ontario (Financial Services Regulatory Authority, Chief Executive Officer)
In Harold the Mortgage Closer Inc. v. Ontario (Financial Services Regulatory Authority, Chief Executive Officer) (Div Court, 2024) the Divisional Court considered the Financial Services Regulatory Authority of Ontario Act (FSRAOA) and the Financial Services Regulatory Authority (FSRA), in particular the latter's 'Transparency Guidance' policy:Relevant Legislation
[58] Sections 3(1)(f) and 6 of the FSRA Act provide:Objects of the Authority
3 (1) The objects of the Authority are,
(a) to regulate and generally supervise the regulated sectors;
(b) to contribute to public confidence in the regulated sectors;
(c) to monitor and evaluate developments and trends in the regulated sectors;
(d) to cooperate and collaborate with other regulators where appropriate;
(e) to promote public education and knowledge about the regulated sectors;
(f) to promote transparency and disclosure of information by the regulated sectors;
(g) to deter deceptive or fraudulent conduct, practices and activities by the regulated sectors; and
(h) to carry out such other objects as may be prescribed.
....
Powers and duties of the Authority
6 (1) The Authority has the capacity, rights, powers and privileges of a natural person for carrying out its objects, subject to the limitations under this Act and section 11.0.1 of the Ministry of Infrastructure Act, 2011.
Same
(2) The Authority shall,
(a) exercise the powers and duties conferred on or assigned to the Authority; and
(b) administer and enforce this Act and every other Act that confers powers on or assigns duties to the Authority, except to the extent that the powers or duties are assigned to or conferred on the Chief Executive Officer.
Same, no subsidiaries
(3) The Authority shall not establish, acquire or dissolve subsidiary corporations. [59] The applicants argue that to allow for true transparency for the public, FSRA should not allow the NOP to be published on its website without also publishing the applicants’ RFH. Unlike the RFH, the NOP has no substantive effect as a matter of law once the RFH is filed. In the alternative, FSRA should not allow either document to be published on its website.
[60] The applicants submit that the policy is unreasonable and unfair because the NOP (which is just a proposed order) is available to be reviewed by the public without the corrections in the RFH being available on the same website. The applicants further submit that the guiding principles pursuant to s. 3(1)(f) of the FSRA Act that include promotion of disclosure, transparency and protection of the public should include publication of all steps in the proceeding, the RFH along with the NOP.
Transparency Guidance
[61] Following a public consultation period, on January 11, 2022, FSRA issued the Transparency Guidance.
[62] The Transparency Guidance describes when FSRA will publish documents issued during its enforcement proceedings. Pursuant to that policy, FSRA publishes its Notice of Proposal to revoke licence, refuse licence, or impose general administrative penalties under the MBLAA.
[63] The Transparency Guidance states that publication “increases public awareness of misconduct and of the sanctions taken to improve consumer protection and deter future misconduct in the regulated sectors.” The Transparency Guidance further states that a consistent and clear approach to transparency of enforcement action ensures that non-compliant regulated entities and individuals are treated evenly and know in advance when and how FSRA will inform the public that it is taking action for non-compliant activity.
[64] The Transparency Guidance is consistent with the practice of many other regulators who publish their enforcement actions before an adjudication of the merits before a disciplinary tribunal.
....
[84] The Transparency Guidance states that its purpose is to “increase public awareness of misconduct and of the sanctions taken to improve consumer protection and deter future misconduct in the regulated sectors”. It sets out under “Rational and principle” that “Greater transparency of Enforcement Action achieves FSRA’s statutory objects” which include (relevant here). To protect the rights and interests of consumers
. To regulate and generally supervise the regulated sectors
. To promote high standards of business conduct in the financial services sectors
. To contribute to public confidence in the regulated sector
. To deter deceptive or fraudulent conduct, practices, and activities by the regulated sectors. [85] The Transparency Guidance also states that “a clear and consistent approach to transparency of Enforcement Action also ensures that non-compliant related entities and individuals are treated evenly and know in advance when and how FSRA will inform the public that it is taking action for non-compliant activity.” The Transparency Guidance sets out that FSRA ensures greater awareness of its Enforcement Action by making Enforcement Information publicly available on the enforcement section of the FSRA web site and through news releases. It states that FSRA issues a news release when Enforcement Action is taken and that the combination of a news release and public posting of the Enforcement Information (here, the NOP) on FSRA’s web site promotes public awareness and reduces risk to consumers.
[86] The applicants’ submission that FSRA acknowledges that publication can cause harm and has included this in their Transparency Guideline under the heading “Discretionary circumstances” is misplaced. On its face, “Discretionary circumstances” does not apply to enforcement action where formal legal action is initiated by FSRA to impose regulatory sanctions for noncompliance by the issuing of a NOP as is the case here.
[87] FSRA’s publication decisions are consistent with the practice of many other regulators which also publish their enforcement actions before an adjudication of the merits by a disciplinary tribunal. FSRA indicates in the published NOP that the document contains allegations that may be subject to proof at a hearing. . Harold The Mortgage Closer Inc. v. Chief Executive Officer of the Financial Services Regulatory Authority of Ontario
In Harold The Mortgage Closer Inc. v. Chief Executive Officer of the Financial Services Regulatory Authority of Ontario (Div Court, 2024) the Divisional Court considered a motion to quash a JR, here which challenged the issuance of a 'notice of proposal' by the 'Financial Services Regulatory Authority' (FSRA) to revoke and refuse to renew a mortgage broker license, to impose administrative penalties - and as well of the FSRA's publication of enforcement policy documents, and more. The applicants also filed for a full de novo hearing before the Financial Services Tribunal in relation to this matter.
Here the court addresses the preliminary Authority's 'notice of proposal' procedures, which it finds as premature from a JR perspective - since there are one full administrative hearing and subsequent appeals still available to it:[8] Under the applicable statutory scheme, the applicants will be entitled to a full hearing process before the tribunal in respect of the allegations contained in the regulator’s notice of proposal. A very high degree of procedural protection is available to the applicants in light of the serious nature of the relief sought against them. The hearing is a full trial de novo. It is not just an appeal from the notice of proposal. The hearing outcome will be based on the evidence to be admitted, after pre-hearing disclosure, cross-examination of witnesses, and submissions.
[9] The regulator rightly distinguishes two types of claims brought by the applicants. They each result in different outcomes.
[10] First, it is plain and obvious and without any serious doubt that the applicants’ complaints about the conduct of the regulator in issuing the notice of proposal and its contents are premature.
[11] Mr. Solmon asserts that it is clear that the regulator issued a notice of proposal that was deliberately false and that the court needs to be available to police such egregious misconduct.
[12] That is neither the scheme of the relevant statutes nor of the Judicial Review Procedure Act on which the applicants rely. This case is on all fours with Volochay v. College of Massage Therapists of Ontario, 2012 ONCA 541 (CanLII). In that precedent decision, a judge quashed a tribunal’s decision to appoint an investigator. The decision was made in direct violation of the statutory procedural right of the target of the investigation to be heard prior to the decision being made. In Volochay, even with the breach of a statute, the Court of Appeal held that proceedings must be left to run their course if there is an adequate alternative to the court becoming involved and absent exceptional circumstances.
[13] In this case, the applicants’ reliance on very general duties of a regulator in ss. 3 and 6 of the Financial Services Regulatory Authority of Ontario Act, 2016, SO 2016, c 37, Sch 8, do not really add any more strength to the case than is available from the general legal notion that government bodies should obey the law, behave fairly, and should not lie.
[14] Even assuming for the sake of argument that the applicants can establish that the regulator deliberately issued and publicized falsehoods about the applicants in the notice of proposal, this application still runs right into the hearing before the Financial Services Tribunal provided by the Mortgage Brokerages, Lenders and Administrators Act, 2006, SO 2006, c 29.
[15] In that hearing, the regulator will bear the burden of proving the allegations in its notice of proposal. The applicants will be entitled to defend themselves fully and fairly. At the end of the day, the tribunal will make findings of fact and apply the appropriate law. If it finds that the regulator has been untruthful or violated its duties, it will consider the appropriate outcome. If the applicants are then not content with the outcome, they have further appeal rights to the court and possibly also the ability to seek judicial review for matters that do not fall within appeal rights.
[16] I do not agree with Mr. Solmon that the facts are uncontested or clear. I understand why the applicants allege the regulator said things to which they object. But I would not be able to make findings of fact on the written record before me and I do not believe that a panel of this court will be any better off on an early judicial review. The panel is a review body. It is not a fact-finding body generally.
[17] The place for findings of fact to be made on disputed evidence is before the tribunal.
[18] Moreover, any procedural unfairness caused to the applicants by the delivery of the notice of proposal containing incorrect facts can and will be cured by a full trial process before the tribunal with a high standard of procedural fairness and natural justice enforced.
[19] I note that I do not necessarily agree with the tribunal’s decision in this case that it has no authority to review the conduct of the regulator or to cause it to take steps deemed necessary for fairness of the proceeding before the tribunal. The notice of proposal is not necessarily spent or rendered a dead letter by the delivery of the request for a hearing. The notice of proposal remains the regulator’s statement of allegations that guides the issues before the tribunal.
[20] But even if the applicants ask the tribunal to give some remedy against the regulator and the tribunal declines after a full hearing, the applicants will still have their appeal and review rights before the court. In those hearings, the court will be armed with a full evidentiary record, findings of fact on the contested evidence, and the specialist tribunal’s views and reasoning on the issues that were argued before it by the parties.
[21] Under Volochay, the tribunal proceeding must be left to run its course as it is a very adequate alternative to the relief sought contesting the notice of proposal and the regulator’s conduct in issuing it. There are no exceptional circumstances at play in my view. Mr., Solmon submits that this case is exceptional because the claim is that the regulator included untruthful allegations in the notice of proposal deliberately. That does not take the case outside the principle in Volochay. Moreover, the strategy that, “the best defence is a good offence” is not as unusual or exceptional before the court as Mr. Solmon surmises.
[22] It follows that I quash as premature the portion of the application challenging the validity of the notice of proposal.
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