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The findings call into question whether mortgage brokers, which originate 30 per cent to 40 per cent of new loans in Canada’s $1.5 trillion (US$1.1 trillion) mortgage market, are being adequately supervised as record household debt and rising interest rates make it harder for borrowers to make repayments.

Mortgage underwriting standards came under scrutiny in Canada after the country’s biggest nonbank lender, Home Capital Group Inc., accepted responsibility for misleading investors about problems with its procedures in 2017.

The FSCO plays a particularly important role because it supervises brokerages in Toronto, Canada’s biggest housing market. It is due to be replaced by a new regulatory body, the Financial Services Regulatory Authority (FSRA), in the spring of this year but it is currently unclear whether FSRA will have significantly more resources than its predecessor.

In a statement, FSCO said it conducts a thorough investigation where individuals or entities are identified as presenting an elevated risk.

“This investigative process, which makes the best use of finite resources to address the most significant risks, may include, but does not require, a site visit,” it said. “As a result, planned examinations may not take place, but other regulatory and supervisory activities would occur, based on the resources available.”

The on-site examinations involve FSCO staff visiting mortgage brokerages that initial reviews have flagged as having “elevated risk levels,” warranting further investigation, according to a June 2018 government audit of FSCO’s market regulation branch which Reuters obtained through a freedom of information request. They are meant to catch problems early, before they escalate, the report said.