Alternative Lenders Say Lumping Them With Private Credit Misses the Risk
A new paper from the Canadian Alternative Mortgage Lenders Association landed last week with a simple ask: stop treating us like the people we're not. The issue is regulatory drift. As OSFI and the Bank of Canada turn their attention to non-bank financial risk, the working definition of "non-bank" has started to blur. Alternative lenders that operate under provincial regulation, file quarterly reports, and submit to stress testing are getting lumped into the same risk category as private mortgage funds that do none of those things.
The distinction matters because the risk profiles are not the same.
Regulated versus unregulated is not a cosmetic line
Alternative lenders in Canada, think Home Trust, Equitable Bank's alt-A division, smaller MICs registered under provincial securities law, operate under regulatory oversight. They file with provincial authorities. Their capital adequacy gets monitored. They face redemption rules and disclosure requirements. When rates moved in 2022 and 2023, regulators knew where these lenders stood because the data was on file.
Private mortgage funds operate differently. Some are federally incorporated, some provincially. Disclosure varies. Capital requirements are lighter or absent. A subset files detailed quarterly reports. Many do not. When the conversation turns to systemic risk in the non-bank space, this is the part of the market where visibility drops.
CAMLA's argument is that regulatory policy should not treat those two groups as a single category. A stressed borrower with a loan from a provincially regulated alternative lender has recourse mechanisms and a paper trail. A stressed borrower who took money from an unregulated private fund operating out of a strip mall in Brampton has something else.
The risk concentration is also different. Alternative lenders tend to hold diversified books. They originate across regions, across property types, across income bands. Private funds, especially the smaller ones, can end up heavily concentrated in a single geography or a single asset class. That concentration amplifies risk when the market turns. It also means contagion can move faster.
What regulators are actually seeing
The Bank of Canada's Financial System Review has been flagging non-bank mortgage credit growth for three years. Outstanding mortgage credit held outside the Big Six sat at roughly $340 billion as of mid-2024, up from $280 billion in 2021. That growth happened while the banks tightened underwriting and stepped back from higher-risk segments. Someone had to fill the gap. Non-banks did.
The question regulators are asking is whether that shift moved risk out of the regulated core and into a part of the system where shocks propagate differently. The CAMLA paper says yes, risk moved, but not uniformly. Regulated alternative lenders have loss-absorption mechanisms and liquidity buffers. Private funds, in many cases, do not.
When a private fund faces redemption pressure, it can freeze withdrawals or liquidate assets into a soft market. When a regulated alternative lender faces stress, OSFI or the provincial regulator has tools. The difference is not academic. It is the difference between a controlled workout and a fire sale.
The policy fork
The direction this goes matters for two reasons. One, if regulation treats all non-banks as high-risk, capital costs rise uniformly. That pushes some regulated lenders toward riskier lending to cover the cost, which is the opposite of what policy intends. Two, blanket regulation misses the part of the market where actual opacity sits. The private funds that do not report, do not file, and do not face capital rules are the ones regulators should be watching. Sweeping them into the same bucket as entities already filing quarterly financials wastes enforcement bandwidth.
CAMLA's pitch is simple: regulate by risk, not by label. The label "non-bank" describes funding structure, not risk. A regulated alternative lender with a $2 billion diversified book and quarterly filings is not the same systemic risk as a $50 million private fund concentrated in pre-construction condos in one postal code. Treating them identically gets the risk backward.
A new paper from the Canadian Alternative Mortgage Lenders Association landed last week with a simple ask: stop treating us like the people we're not. The issue is regulatory drift. As OSFI and the Bank of Canada turn their attention to non-bank financial risk, the working definition of "non-bank" has started to blur. Alternative lenders that operate under provincial regulation, file quarterly reports, and submit to stress testing are getting lumped into the same risk category as private mortgage funds that do none of those things.
The distinction matters because the risk profiles are not the same.
Regulated versus unregulated is not a cosmetic line
Alternative lenders in Canada, think Home Trust, Equitable Bank's alt-A division, smaller MICs registered under provincial securities law, operate under regulatory oversight. They file with provincial authorities. Their capital adequacy gets monitored. They face redemption rules and disclosure requirements. When rates moved in 2022 and 2023, regulators knew where these lenders stood because the data was on file.
Private mortgage funds operate differently. Some are federally incorporated, some provincially. Disclosure varies. Capital requirements are lighter or absent. A subset files detailed quarterly reports. Many do not. When the conversation turns to systemic risk in the non-bank space, this is the part of the market where visibility drops.
CAMLA's argument is that regulatory policy should not treat those two groups as a single category. A stressed borrower with a loan from a provincially regulated alternative lender has recourse mechanisms and a paper trail. A stressed borrower who took money from an unregulated private fund operating out of a strip mall in Brampton has something else.
The risk concentration is also different. Alternative lenders tend to hold diversified books. They originate across regions, across property types, across income bands. Private funds, especially the smaller ones, can end up heavily concentrated in a single geography or a single asset class. That concentration amplifies risk when the market turns. It also means contagion can move faster.
What regulators are actually seeing
The Bank of Canada's Financial System Review has been flagging non-bank mortgage credit growth for three years. Outstanding mortgage credit held outside the Big Six sat at roughly $340 billion as of mid-2024, up from $280 billion in 2021. That growth happened while the banks tightened underwriting and stepped back from higher-risk segments. Someone had to fill the gap. Non-banks did.
The question regulators are asking is whether that shift moved risk out of the regulated core and into a part of the system where shocks propagate differently. The CAMLA paper says yes, risk moved, but not uniformly. Regulated alternative lenders have loss-absorption mechanisms and liquidity buffers. Private funds, in many cases, do not.
When a private fund faces redemption pressure, it can freeze withdrawals or liquidate assets into a soft market. When a regulated alternative lender faces stress, OSFI or the provincial regulator has tools. The difference is not academic. It is the difference between a controlled workout and a fire sale.
The policy fork
The direction this goes matters for two reasons. One, if regulation treats all non-banks as high-risk, capital costs rise uniformly. That pushes some regulated lenders toward riskier lending to cover the cost, which is the opposite of what policy intends. Two, blanket regulation misses the part of the market where actual opacity sits. The private funds that do not report, do not file, and do not face capital rules are the ones regulators should be watching. Sweeping them into the same bucket as entities already filing quarterly financials wastes enforcement bandwidth.
CAMLA's pitch is simple: regulate by risk, not by label. The label "non-bank" describes funding structure, not risk. A regulated alternative lender with a $2 billion diversified book and quarterly filings is not the same systemic risk as a $50 million private fund concentrated in pre-construction condos in one postal code. Treating them identically gets the risk backward.
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