Ontario’s real estate regulator is getting a new boss.
The province is appointing an administrator to oversee the Real Estate Council of Ontario (RECO) in the wake of the iPro scandal, which raised widespread concerns about the regulator’s ability to protect consumers from theft and fraud.
“To prevent serious harm to the interests of the public and consumers, I have determined that it is necessary to appoint an administrator to assume control of and responsibility for RECO, including all powers and duties of the board of directors, officers, and members of RECO,” wrote Stephen Crawford, minister of Public and Business Service Delivery and Procurement, which oversees RECO.
The letter, which is addressed to Katie Steinfeld, the chair of RECO’s board of directors and CEO Brenda Buchanan, names Jean Lépine as the administrator. He starts Monday.
Crawford is expected to detail Lépine’s responsibilities and next steps in a public announcement at 10:30 am today.
Lépine is described on the government’s website as “seasoned” in communications, government relations and investor relations with 20 years’ experience working in industry in Canada, the U.S. and Europe.
The government response follows outrage in the real estate industry over a deal RECO cut in August with iPro founders Fedele Colucci and Rui Alves, a former RECO board member. The deal allowed the men to avoid charges and fines after their lawyer disclosed a $10-million shortfall from their brokerage’s trust accounts in May just before a scheduled audit.
The regulator did not alert the public to the shortfall until August, allowing the men and the 2,400 agents they employed to transact more than $700 million in home sales before the missing money was revealed. A preliminary review of the company’s books by a forensic accountant hired by RECO reported that Alves and Colucci diverted more than $30 million in trust money to accounts that paid themselves, their other companies, their family members and investors.
The regulator hired Dentons Canada to review RECO’s response to scandal, which the regulator said was the industry’s largest trust account breach. Dentons’ final report, which was shared with the ministry at the end of October and later released publicly on RECO’s website, concluded a single “strong willed” man — former registrar Joseph Richer — orchestrated and executed the deal without the knowledge of the board of directors or the organization’s CEO. RECO’s board “exited” Richer shortly after news of the deal was made public, the report noted.
The Dentons report said Richer’s actions “deviated” from RECO’s “standard process” when trust money is misappropriated, which involves immediately suspending registrants, freezing their brokerage’s bank accounts and issuing a proposal to revoke their licences.
A Star investigation published earlier this week found RECO failed to follow that process in the majority of serious trust misconduct cases over the past five years leading up to the iPro scandal.
When presented with the Star’s findings, RECO’s interim registrar Lisa Key said the majority of the trust misconduct cases identified by the Star are minor and “fall well short of the threshold of egregious behaviour where funds are intentionally removed from trust and disbursed for personal gain.”
Cathy Polan, president of the Ontario Real Estate Association (OREA), which represents more than 100,000 realtors, told the Star the group “fully supports” Crawford’s decision “to ensure RECO gets back to the basics of fulfilling its consumer protection mandate.”
Polan said iPro exposed weaknesses in Ontario’s real estate regulatory system governing brokerage trust accounts and RECO’s inspection and audit policy.
“To address these deficiencies,” said Polan, “we strongly recommend implementing changes to reporting requirements for brokerages, such as requiring brokerages to submit trust account statements. Requiring brokerages to submit the same documentation already required by the Canada Revenue Agency (CRA) would give RECO additional oversight into trust accounts while limiting red tape and costly new requirements.”
Ontario is not the first province to take decisive action against its real estate regulator.
In 2019, the Alberta government fired the real estate regulator’s entire board noting it had become dysfunctional and plagued by internal infighting, following a KPMG audit. The government appointed an interim administrator to improve the regulator.
British Columbia’s government moved to take over its real estate regulator in 2016 in response to several damning reports highlighting the organization’s failures to fulfill its consumer protection mandate. In 2021, the province created a single regulator to oversee financial services sector, including mortgage brokers, insurance companies and the real estate industry.
Bill Duce, CEO of Cornerstone Association of Realtors —representing Hamilton, Mississauga, Burlington and others — also supports a ministry appointed administrator, as the regulator still faces issues outlined in the 2022 Auditor General’s report.
“We feel that RECO has had an opportunity to self-correct working off of the Auditor General’s report. And I’m sure they have made some advancements, and yet we still find ourselves in this position. So we we support the administrator being assigned in this instance because we think it does require an outside perspective to just break any cultural bias or other internal systemic issues that sometimes, if you’re too close to the problem, it’s really difficult to see.”
