March 12th - 2009

Brokerages must have broker of record in place

Under REBBA 2002, each brokerage must have a designated broker of record.

Under REBBA 2002, each brokerage must have a designated broker of record. This individual is responsible for ensuring the brokerage and all of its personnel comply with the Act.


According to RECO’s 2007 – 2008 Annual Report, there has been an increase in Code of Ethics breaches related to brokerage or broker of record responsibilities since the new Act has been in place.


“Based on the nature of inquiries and complaints we have received in the past year, it appears some brokers of record do not understand the impact of their new responsibilities under REBBA 2002. The duty to ensure compliance by brokers and salespersons is therefore a very common breach to the Code of Ethics,” the report states.


RECO says it plans to enhance its communication to brokers of record about their obligations under the Act and the implications of neglecting these duties. For example, if a brokerage fails to appoint a broker of record, the Registrar can issue a proposal to revoke the registration of the brokerage.


In his speech to the RECO Annual Assembly last June, Registrar Allan Johnston spoke about the increase in complaints related to brokerage and broker of record responsibilities. “As you know, the broker of record is responsible for ensuring the brokerage and all of its employees (including independent contractors) are in compliance with the Act and is also responsible for supervising and monitoring the brokerage’s employees and their activities. For those reasons, it’s quite common for the broker of record or brokerage to be included in any enforcement action that is taken against a salesperson or broker employed by the brokerage.”


Responsibilities
According to the Act, the specific responsibilities of the broker of record include signing any brokerage financial statements sent to the Registrar; authorizing any trust account transactions; reviewing and signing monthly trust account reconciliations; reviewing and signing trade record sheets; and actively participating in the management of the brokerage.


He or she must also ensure an adequate level of supervision for the brokers, salespersons and other persons employed by the brokerage and take reasonable steps to deal with any failure to comply with REBBA 2002 by brokers, salespersons and other persons employed by the brokerage.


Sole proprietor or corporate requirements
Subsection 12 (2) of the Act indicates, the broker of record is responsible for ensuring that the brokerage complies with the Act and its regulations. In the case of sole proprietorships, the sole proprietor must also be the broker of record even though other brokers may be employed by the brokerage.


Under the Act’s regulations, corporate brokerages as well as partnerships registered as brokerages must also identify another broker as an alternate signing authority to review and sign off on trust and trade transactions when the broker of record is unable to act. However, a brokerage can only have one designated broker of record at any one time. In cases where a broker of record is going to be absent for a significant period of time and cannot fulfill his or her responsibilities under the Act and regulations, brokerages must designate another broker to act as the broker of record. This designation should be done through a corporate resolution. As per Sec. 12(1)(b) of the Act, brokerages must notify the Registrar of any changes to the designated broker of record within 5 days of the change.


Broker of Record 2
Appointing a new broker of record
In a response to OREA’s inquiry regarding what happens when a broker of record (BOR) cannot fulfill his or her duties, the Registrar says, “When a BOR terminates for any reason, including death, REBBA 2002 requires that the brokerage must appoint a new BOR within five days. In the case of a death, the trustee or executor of the estate, providing their authority extends to the brokerage, can hire and subsequently appoint a new BOR on behalf of the brokerage. If a new BOR cannot be hired, the executor of the estate can terminate the registration of the brokerage and wind up the business of the brokerage. They cannot, however, continue to conduct any new business as the brokerage would then be in violation of REBBA 2002.


“If the trustee chose to continue the business of the brokerage, without a BOR appointed, the brokerage could be charged and a proposal to revoke the registration of the brokerage would be issued. It may also be possible for me to take action against the executor, as a possible “interested person” under the Act or for trading without registration.”


To learn more about the responsibilities and requirements regarding the broker of record visit www.reco.on.ca and click on Registrar’s Bulletins under Publications & Resources.

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