When a licensed mortgage brokerage lends its own funds and is represented by its own broker, must the borrower’s broker also provide it with Form 5 lender disclosure? This question has created uncertainty among our members, particularly where separate brokers represent the borrower and lender, and the lender conducts its own underwriting and due diligence.

Our association has written to the BC Financial Services Authority (BCFSA) seeking clarification on how the disclosure requirements under the Mortgage Services Act apply to these transactions. The letter asks whether both brokers’ activities constitute “arranging” a mortgage, how the related-brokerage exception applies, and—if Form 5 is required—who must deliver it, to whom, and when.

The goal is clear, practical guidance that helps members meet their disclosure obligations without assuming that a lender’s licensing status or separate representation removes those requirements. Our letter to BCFSA is reproduced below.

Dear BCFSA Mortgage Services Team:

We are writing on behalf of our association’s members, who have expressed uncertainty about the requirement to deliver Form 5 in the circumstances described below.

We are seeking clarification regarding the application of Rule 73 and section 8 of the Mortgage Services Act where the lender is a licensed mortgage brokerage lending its own funds through its related licensed personnel, and the borrower is represented by their own borrower-side broker. Specifically, we would like to confirm whether the broker acting for a borrower must provide Form 5 – Disclosure of Information Statement to Lender to a licensed mortgage brokerage lender when that lender is separately represented by its own related broker in the transaction. In this circumstance, both brokers participate in arranging the mortgage for their respective clients.

The Form 5 disclosure obligation arises under Rule 73. Rule 73(1), which, provides:

73(1) Subject to subsection (4), a licensee who does one of the things set out in section 8(1)(a)(i), (ii) or (iii) of the Act must provide the other person referred to in that provision with an information statement that meets the requirements of subsection (3).

The relevant activity under section 8(1)(a)(i) is arranging a mortgage in which another person is to be the mortgagee.

Rule 73(4)(a) creates an exception:

Subsection (1) does not apply to a licensee in respect of a mortgage transaction if the other person referred to in subsection (1) is a permitted person or the licensee’s related mortgage brokerage.

Our understanding is that the related-brokerage exception is intended to avoid requiring a licensee to provide a lender disclosure statement to the licensee’s own brokerage when that brokerage is the lender. Alternatively, it can also be concluded that a licensee is not arranging a mortgage for another person if the licensee is also the mortgagee – hence 8(1)(a)(i) is not triggered. However, it is less clear how the rule applies to an unrelated borrower-side broker who also participates in arranging the mortgage.

In a typical private lending transaction, each broker acts for and represents its own client (or itself if a lender brokerage), thereby arranging the mortgage as follows:

Borrower Broker

• Represents the borrower.
• Obtains and submits the mortgage application to the lender.
• Provides borrower and transaction information.
• Negotiates mortgage terms on the borrower’s behalf.
• Advises and acts in the interests of the borrower.

Lender Broker

• Represents the lender.
• Receives and evaluates the application submitted by the borrower broker.
• Conducts underwriting and due diligence on behalf of the lender.
• Assesses the borrower, security, and overall credit risk.
• Negotiates terms for the lender and protects the lender’s interests.

For example:

1. ABC Mortgage Brokerage represents the borrower and submits the mortgage request to XYZ Mortgage Brokerage.
2. XYZ Mortgage Brokerage is licensed to provide the mortgage service of lending, advances its own corporate funds, and becomes the mortgagee.
3. A broker related to XYZ acts for XYZ as lender, underwrites the mortgage, assesses the security and borrower, negotiates the terms, and facilitates loan approval and funding on XYZ’s behalf.
4. ABC and XYZ are unrelated brokerages. ABC does not act for, advise, represent, or underwrite on behalf of XYZ.

In this structure, ABC’s broker represents only the borrower, and XYZ’s broker represents only the lender.

Our reading of Rule 73 is that XYZ’s broker is not required to provide Form 5 to XYZ because the lender is the broker’s related mortgage brokerage and the exception in Rule 73(4)(a) applies or section 8(1)(a)(i) is not triggered. However, exception are not available to ABC because XYZ is not ABC’s related mortgage brokerage. As a result, it appears ABC may still be required to provide Form 5 to XYZ despite not representing the lender.

If that interpretation is correct, it would mean that the borrower-side broker must provide the Form 5 lender disclosure directly to a lender that:

• is already represented by its own broker,
• has independently assessed the transaction,
• has conducted its own underwriting and due diligence,
• is responsible for approving and funding the loan, and
• is already receiving the borrower and transaction information necessary to make its lending decision.

This does not appear logical or even necessary. As you know, under the Mortgage Brokers Act regulations, lenders that are licensed mortgage brokers are treated as sophisticated persons and are exempt from receiving Form 9 lender disclosure. 

Can you please confirm the following:

Do the activities of both the borrower broker and lender broker constitute “arranging” for the purposes of section 8(1)(a)(i) and Rule 73(1)?

Is each licensee’s obligation under Rule 73 assessed independently based on that licensee’s relationship to the recipient of the disclosure?

Please also confirm our understanding of the purpose and intended scope of the related-brokerage exception in Rule 73(4)(a).

If Form 5 is required, please clarify who must deliver it, to whom and when, and whether delivery to XYZ’s related broker satisfies the delivery requirement.

Your clarification will help our association provide members with consistent guidance on their disclosure obligations under the Mortgage Services Act. Thank you for your assistance.

Kind regards,