In Harold the Mortgage Closer Inc. v. Ontario (Financial Services Regulatory Authority, Chief Executive Officer), 2024 ONSC 4464, released on Aug. 12, Justice Nancy Backhouse held that the issuance of FSRA’s transparency guidance and the process by which it was developed was reasonable.
“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,” the judge wrote.
In May 2022, the Toronto Star published several articles questioning the conduct of the applicants Harold the Mortgage Closer Inc. and its principal broker and sole director Harold Gerstel, who holds a mortgage broker licence under the Mortgage Brokerages, Lenders and Administrators Act.
The FSRA, which regulates mortgage brokering and other non-securities financial services sectors in Ontario, conducted a compliance examination of Harold the Mortgage Closer Inc. and also began a more detailed investigation into the applicants’ business dealings.
In June 2023, the FSRA initiated enforcement proceedings against the applicants by issuing a notice of proposal (NOP) alleging that Gerstel had provided false information to the FSRA on its renewal application and that the applicants provided incomplete responses to the FSRA’s regulatory inquiries.
The FSRA also alleged that Gerstel had failed to attend an examination under oath in response to a summons issued by the regulator.
The NOP also alleged that the courts had raised concerns with respect to Gerstel’s honesty and integrity in a previous civil proceeding.
The applicants asked the FSRA not to publish the NOP, but the FSRA refused the request, stating that it believed that the public’s interest in transparency necessitated publication before the conclusion of sometimes lengthy hearing processes.
The FSRA’s 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.”
In July 2023, the applicants filed a request for hearing (RFH), in which they disputed the allegations in the NOP and asserted that it was unfair and defamatory as it included allegations known to the FSRA to be incomplete, unfair, unreasonable and misleading.
The applicants brought a motion before the Financial Services Tribunal (FST) to require the FSRA to publish the RFH on its website, along with the NOP.
The FST declined to grant the request, finding that it did not have jurisdiction or authority over the FSRA’s conduct and could not compel the FSRA to publish the RFH.
The applicants filed an application for judicial review, seeking to quash or amend the NOP and challenge its publication. They also sought to challenge the transparency guidance and the FSRA’s refusal to publish the RFH.
In Harold The Mortgage Closer Inc. v. Financial Services Regulatory Authority of Ontario (Chief Executive Officer), 2024 ONSC 2236, released on April 16, 2024, a motion judge quashed the portions of the application that sought to strike or amend the NOP.
The motion judge declined to strike the portion of the application seeking a declaration with respect to publication of the NOP and the RFH, leaving the issue open to the panel of the Divisional Court hearing the application.
The applicants alleged that the FSRA is exercising statutory powers under ss. 3 and 6 of the Financial Services Regulatory Authority of Ontario Act and that the relevant decisions were amenable to judicial review.
Section 3 of the Act sets out the objectives of the FSRA while s. 6 lists the powers and duties of the FSRA.
The FSRA submitted that the court did not have jurisdiction because the purported decisions were not an exercise of statutory power and had no effect on the legal rights or obligations of the applicants.
Justice Backhouse noted that the FSRA is not specifically required or empowered by statute to issue the Transparency Guidance or publish the NOP.
“While the Transparency Guidance states that the policy achieves FSRA’s statutory objects, neither ss. 3 nor 6 confer any authority or obligation on FSRA to publish NOPs and FSRA does not rely on either section to do so,” the judge wrote.
The court noted that the transparency guidance simply describes when and how the FSRA will publish documents related to its enforcement proceedings.
The applicants alleged that the publication of the NOP had an adverse effect on their reputation and that they have a right to have their reputation protected and dealt with fairly before the merits have been decided by the FST.
Justice Backhouse accepted that the applicants have an interest in their reputation, but held that the publication of allegations by the regulator does not give rise to a right to judicial review.
“The Decisions here do not affect the legal rights, interests, property, privileges, or liberty of the applicants,” the judge wrote.
The judge held that the issuance of the transparency guidance was reasonable and in the public interest.
The court held that the applicants had not identified a compelling reason for the FSRA to depart from its standard publication practice.
“While the subjects of regulatory action often disagree with the allegations put forward by the regulator, there is a comprehensive statutory remedy, namely a de novo hearing before the FST,” the judge wrote.
The court added that the FSRA’s publication of the NOP was a reasonable application of the transparency guidance.
The court also held that the FSRA’s decision not to publish the RFH was reasonable, noting that the RFH may contain inaccurate information or otherwise objectionable material.
“The applicants have not shown that the Decisions to issue the Transparency Guidance, to publish the NOP, and not publish the RFH, impact upon the fairness of their hearing before the FST. Decisions to adopt general policies are not subject to a duty of fairness,” the judge wrote.
The court held that the decisions were reasonable and dismissed the application.
Justices Richard Lococo and Janet Leiper concurred in the decision.
The FSRA welcomed the decision.
“This is not just a win for FSRA but for all consumers. It reaffirms FSRA’s authority to issue the Transparent Communication of FSRA Enforcement Action Guidance, which serves the public interest and our mission to ensure stronger consumer protection measures in Ontario,” said Russ Courtney, a spokesperson for the FSRA.
Counsel for the parties were not immediately available for comment.
Counsel for the applicants were Melvyn Solmon and Joanne Iskander Salmoon of Solmon Rothbart Tourgis Slodovnick LLP.
Counsel for the Chief Executive Officer of the Financial Services Regulatory Authority of Ontario and the Attorney General of Ontario were Michael Scott and Troy Harrison.
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