FSRA disciplinary disclosure faces legal challenge

An Ontario court rejected a preliminary effort to shoot down an enforcement case brought by the Financial Services Regulatory Authority of Ontario (FSRA), but allowed a potential challenge to the regulator’s approach.

According to a decision from the Ontario Superior Court of Justice, FSRA brought proposed enforcement action against a mortgage broker in June 2023, seeking to revoke the broker’s licence and to impose penalties for alleged violations of the mortgage broker rules, including that the firm allegedly failed to cooperate with the regulator.

The allegations have not been proven.

In the meantime, the broker asked the court to quash the regulator’s notice of hearing against it. The broker also sought a judicial review of FSRA’s guidance that sets out its approach to publicizing enforcement actions, as well as FSRA’s decision to publicize the allegations in this case — but not the broker’s request for a hearing and its denial of the allegations.

“[T]he applicants seek orders compelling the regulator to amend its publication policy, to remove the notice of proposal from its website, to publish their response to the notice of proposal, and to enforce the statutory scheme to prevent the applicants’ competitors from misusing the notice of proposal to injure the applicants’ reputation and business,” the court said.

In response, FSRA asked the court to quash all of the applications for judicial review.

“The regulator submits that it is plain and obvious that the relief claimed by the applicants in this proceeding is not available to them,” the court said.

Ultimately, the court handed down a split decision. It sided with the regulator by rejecting the proposed judicial review of the initial enforcement action, but refused to quash the proposed challenge to FSRA’s approach to disclosing these kinds of proceedings.

Brokers’ “complaints about the conduct of the regulator in issuing the notice of proposal and its contents are premature,” the court said regarding the challenge to the enforcement action. The proposed disciplinary action should first be dealt with by the Financial Services Tribunal that hears these kinds of cases, the court said.

“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,” the decision said. “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.”

After that hearing, the subjects of enforcement action would then have the right to seek a judicial review of the tribunal’s decisions, the court said. At that point, the court would have the benefit of “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.”

The tribunal proceeding should play out before a judicial review is considered, the court concluded.

However, the court declined to quash the requests for a review of FSRA’s decision to publish its allegations without the broker’s request for a hearing into those allegations.

According to the court’s decision, the broker said its rivals are using the regulator’s allegations “to slag them in the marketplace” and that FSRA’s refusal to publish the request for hearing “impair[s] its reputation and impact[s] its legal rights.”

The court’s decision noted the Supreme Court of Canada “has recognized peoples’ legal interest in their reputation.”

Without addressing whether the broker has a valid challenge to FSRA’s guidance on announcing enforcement actions, or FSRA’s publication decisions in this case, the court said, “I do not accept the regulator’s submissions that it is plain and obvious that they are either unreviewable private decisions or decisions that do not impair the legal rights or interests of the applicants.”

As a result, the court refused to quash the broker’s bid a for judicial review of the regulator’s guidance and its decisions about what to publish in this case.

The court said, however, that there was no basis for an order requiring FSRA to take action against other firms for allegedly using the enforcement allegations to their competitive advantage.

“There is no duty owing to the applicants for the regulator to take any steps against competitors. Moreover, prosecution and enforcement are always discretionary,” it said.

“As this matter is before the courts and the Financial Services Tribunal, we won’t be commenting further,” a FSRA spokesperson stated in an email.