A massive illegal mortgage scheme that exposed gaps in B.C.’s financial enforcement system is helping drive a regulatory overhaul of the province’s mortgage industry.

The new Mortgage Services Act, set to come into force Oct. 13, will give the B.C. Financial Services Authority stronger powers to pursue unlicensed actors, impose larger penalties and seek the return of illicit profits.

The changes follow the case of Jay Chaudhary, an unregistered mortgage broker whose Vancouver home was searched in 2019 by police and regulators investigating tips of unscrupulous activity.

During the Feb. 12, 2019 search, investigators uncovered documentation, spanning eight years, for $511 million of illegally arranged mortgages, utilizing a clandestine network of licensed real estate agents and registered mortgage brokers.

On May 29, 2019, Chaudhary’s alleged actions became public when he was issued an urgent cease-and-desist order via an ex parte hearing.

In February 2021, Chaudhary, who used numerous aliases since first being suspended as a registered submortgage broker in October 2008, was summoned to the Commission of Inquiry into Money Laundering in B.C., where he admitted he systemically falsified employment, income and tax documents to obtain mortgages for unqualified individuals via his network.

To date, 23 Chaudhary-connected registrants and licensees have faced administrative charges from the B.C. Financial Services Authority (BCFSA), a recently consolidated government-led regulator for the province’s registered financial and real estate service providers.

All but one of those individuals have agreed to pre-hearing settlements resulting in penalties including bans, suspensions and fines.

However, this has not been the case for Chaudhary, who has also avoided criminal prosecution. According to 2024 correspondence from the Canada Revenue Agency (CRA) to the BCFSA, this is due to a “technicality,” the details of which have not been disclosed publicly.

Chaudhary was able to largely avoid regulatory tentacles because the soon-to-be-repealed Mortgage Brokers Act did not contemplate further penalties under the urgent cease-and-desist provision for unregistered individuals.

This apparent loophole in enforcement is about to change, the regulator says, when the new Mortgage Services Act comes into force on Oct. 13, in direct response to the activities exposed at the commission and the numerous non-binding recommendations provided by commissioner Austin Cullen to curb money laundering risks in B.C. real estate.

“Certainly the fly-by-night or the unlicensed component is something that indeed we seek to continue to focus on, but it’s broader than that,” Jon Vandall, senior vice-president, financial professionals with the BCFSA, told Business in Vancouver.

Under the new act, disciplinary penalties for mortgage brokers will increase from a maximum of $50,000 to $250,000, or $500,000 for brokerages.

The act also addresses disgorgement of illicit profits via additional orders over and above the maximum fines, said Vandall.

The new act represents an opportunity for a cultural shift in the mortgage services area from one that was focused on transaction volumes and velocity to one that’s more focused on consumer outcomes and impacts, said Vandall, whose organization operates under a public interest mandate.

Transparency of mortgage industry professionals, said Vandall, is a key priority for the regulator moving forward in the wake of the commission.

The new act will regulate more people in the industry, as it defines mortgage services to mean dealing in mortgages beyond your typical residential mortgage origination, such as trading, lending, syndication and administration of mortgages.

The regulator, said Vandall, has already implemented background checks and suitability requirements under the existing act, which cover not just criminal records but also financial risk, bankruptcy patterns and history, and enhanced ownership checks on registered corporate entities.

But some rules won’t come into force right away, such as new rules for non-business mortgage lenders who are individuals, Vandall noted.

Once in place, the new act will complement other measures, such as the 2024 implementation of mortgage brokers becoming reporting entities to Fintrac.

The new act appears to be largely welcomed by industry actors, who suggest the proof will be in the pudding.

“I think we may eliminate some of the bad actors, but I guess time will tell if and when penalties and fines are levied and people are disciplined; I think that’s when we’ll know whether this sort of all makes sense,” said Paul Grewal, partner with Fasken Martineau DuMoulin LLP.

Samantha Gale, CEO of the Canadian Association of Private Lenders, said her members support a well-regulated industry, though mortgage fraud often happens below the radar and the regulator will need to adapt to prevent new loopholes.

“There’s different forces at work, where the concept of mortgage fraud is always shifting, and now of course you’ve got AI,” she said, suggesting, for example, AI could create false borrower personas.

“Mortgage fraud is constantly evolving, and obviously you want to have better tools to handle that, you want to have a compliant industry, and so this will certainly tighten it up for sure,” said Gale.

Aman Bindra, partner with KSW Lawyers, said a lot of the mortgage regulation changes mirror the existing system in B.C. for regulating real estate agents.

The legislation is welcome, but it’s really more a question of resources and enforcement, he said.

“Do our government regulators … have the resources to keep up the way people try to commit bad acts or launder money or whatever it might be?” Bindra said.

“Or is it, the legislation is great in theory but we don’t really have the resources to enforce it?”

Bindra said another key consideration to closing the door on fraudulent applications is the implementation of direct verification between brokers and the CRA—a matter beyond the direct purview of the regulator but one that could soon become part of industry standards.

So, instead of brokers becoming dupes, or worse, by submitting false tax records to lenders, many industry observers have long suggested that if a broker can verify with the CRA the information a client is presenting to them, a lot of fraud can be eliminated.

“This is needed after the run-up [in real estate prices] we saw during COVID,” said Bindra.

“If you can verify all this and align with the CRA, it would solve a lot of problems.”

While the issue remains unresolved, in July 2025 the CRA issued a report on industry consultation and stated it is examining IT, privacy, security and legal issues that would “help financial institutions detect and deter fraud in a manner that is secure, user-friendly, and compatible with the CRA’s systems.”

“BCFSA welcomes the ability to directly leverage CRA data holdings to verify a borrower’s income,” said BCFSA spokesperson Kate Bilny.

“The ability to verify income data from CRA would enable BCFSA to more accurately assess whether income documents have been fraudulently altered.

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