RECO’s first Collaboration Summit: Key learnings and next steps

Watch a recap video of the first RECO Collaboration Summit

We appreciated the participation and solution-oriented conversation from leaders in the real estate sector on three priority areas: annual brokerage financial filings, trust account oversight, and the insurance program that will help RECO move forward in making positive changes for consumers and the sector.

RECO is committed to rebuilding trust with the sector through increased transparency, actions, and accountability.

We are pleased to share the key learnings and highlights from the conversation.

Annual brokerage financial filings

Overview of RECO’s proposed direction: RECO is preparing to implement annual brokerage financial filings, enhancing its financial oversight of brokerages. This includes a requirement for an accountant to complete a review of a sample month of trust activity and certify a portion of the filing. The due date for the annual brokerage financial filing will be based on the brokerage’s fiscal year end.

Key information collected through the filing will include:

• Information from the brokerage’s financial statements (for example, balance sheet and income statement items)
• Account balances and trust liabilities (trust and general accounts)
• Verifications that the brokerage complied with specific provisions of the legislation
• Total transactions or ends of transactions
• Total of all unclaimed trust monies
• Portion of unclaimed trust monies required to be remitted to RECO (following the filing)

Broad consensus: The group supported the need for increased financial oversight, the need to protect trust monies and that the accountant functions should be performed by an external entity/person to provide unbiased audits.

Trust account oversight

Overview of RECO’s proposed direction: Given that brokerages are not required by law to maintain commission trust accounts, oversight of the handling of commission trust funds and RECO’s enforcement authority is not clear. RECO is considering two options that would provide clarity regarding the use of commission trust accounts and what trust monies are permitted to be held in and disbursed from the real estate trust account and commission trust account. Both options will require supporting amendments to TRESA, which is subject to government decision making.

Option 1: Eliminate commission trust accounts and the brokerage’s share of the earned remuneration will be transferred to the brokerage’s general account.

Option 2: Continue commission trust accounts, for commission payable to the brokerage and the agents it employs, and require the commission trust account to be subject to the same requirements as the real estate trust account.

Broad consensus: The group agreed that there is an issue on clarity around commission trust accounts, including whether agent commissions are trust monies, and that the current framework doesn’t protect commissions. However, there was a divide in opinion of those advocating for enhanced regulatory protection of commission trust accounts and those viewing additional oversight as unnecessary.

Suggestions that we heard about annual brokerage financial filings and trust account oversight are being considered:

• Funding and resources: Increase RECO’s fees to support these initiatives and ensure adequate staffing to review annual brokerage financial filings effectively.
• Trust account reconciliations: Implement monthly or semi-monthly submissions to reduce risk.
• Enhanced compliance measures: Mandate dual authorization for trust account disbursements and implementation of a monthly comparison of trust reconciliation against trade records for validation.
• Auditing and oversight: Introduce ongoing auditing practices for early intervention and explore educational audits for brokerages to ensure continuous learning and compliance.
• Whistleblower process: Implement a whistleblower process for the sector to report serious concerns confidentiality with an option to protect identity.
• Various timeframes were suggested: Align with the CRA deadline; 60 days; 90 days; 6 months after the brokerage’s fiscal year end.
• Leverage technology: Standardize and utilize existing platforms that are already being used within the sector for real-time monitoring. Use AI tools to analyze financial filings.
• Reporting: Report publicly on the consolidated findings of annual brokerage financial filings to help the sector learn from non-compliance issues.

The professional liability insurance program administered by RECO

Overview of the insurance program: The insurance program operates through insurance contracts within the regulatory framework. It is a unique program that supports confidence and stability in Ontario’s real estate transactions. The program protects consumers and safeguards real estate transactions, ensuring that deals close even when a brokerage becomes insolvent.

Broad consensus: The group supports the existing RECO-administered program and acknowledges the need for targeted structural modifications. The group supported centralized administration and valued the legislative mandate for insurance and RECO’s management that has helped keep costs down. There was agreement that the uniform limits on deposit and commission coverage inadequately address transaction volume differences.

Suggestions that we heard and are being considered:

• Program modernization: Revise the program to reflect current realities including modern brokerage models and transaction volumes, while incorporating demographic considerations.
• Tiered deductibles: Implement a tiered deductible system that reflects the policy’s actual usage to distinguish claims based on the size and activity of the brokerage instead of having a flat deductible for all.
• Cost sharing: Require brokerages to contribute to the insurance program costs.
• Brokerage variations: Customize insurance coverage to reflect the differences between large multi-person brokerages and small operations.
• Independent commission coverage: Allow agents to independently purchase their own commission insurance to align with their specific needs.

Next steps

We appreciate your valuable feedback and insights shared on these three key issues. RECO will consider the input as we work through these priority areas.

RECO remains committed to keeping you updated as we strengthen the real estate sector and protect consumers.