The delay by the Real Estate Council of Ontario (RECO) in announcing the winner of its initial licence training Request for Proposal should ring alarm bells. RECO may be about to attempt its biggest cash grab since it required that all registrants buy their E&O insurance exclusively from its own insurance scheme. RECO is using its regulatory authority to find new opportunities to generate revenue outside of its mandate – vacuuming up surrounding businesses and denying Ontarians employment.
In January, REM reported that the Ontario Real Estate Association’s bid for the initial licence training contract was rejected. This ended an uninterrupted monopoly that RECO granted to OREA since the creation of RECO. This is a single-source, multi-year contract worth tens of millions of dollars annually. It is no secret that OREA pays kickbacks to RECO for the privilege of an exclusive education contract. After consistently awarding OREA this cash cow for years, RECO may have finally decided it was not satisfied with the kickbacks alone and has opted to milk the cow itself.
Next, RECO will undoubtedly claim that no education provider can fully meet its RFP terms and, as a result, RECO must take over this highly lucrative education activity. In 2013, I warned Minister of Consumer Services Tracy MacCharles in writing that RECO would likely make a strategic move to take over initial licence training after its takeover of continuing education. I explained how it would be contrary to the interests of registrants and Ontarians. RECO did not earn its current title of education provider through merit; they gained it through regulatory brute force, as they did with E&O insurance.
Regardless of who the winner of the RFP will be, the losers are certain to be the people of Ontario whenever exclusive contracts are involved. There is ample evidence from other jurisdictions of Ontario’s size that competition will result in more private sector jobs, innovation and lower consumer prices without sacrificing quality. Not content with its annual millions in licence fees, RECO has systematically pursued new ways to generate revenue while pushing existing Ontario businesses out of the way. Perhaps the reason has more to do with RECO’s appetite for revenue that the interests of Ontarians.
First, RECO forced all registrants to buy E&O insurance from their regulator while denying registrants the opportunity to purchase the insurance at more affordable rates from competing insurers. This has resulted in RECO generating tens of millions of dollars from steadily rising annual premiums. The Financial Services Commission of Ontario (FSCO) is the government body responsible for supervising all provincial insurers. At the very least, the current fund should be operated under FSCO, as opposed to RECO running its own unsupervised insurance company. FSCO’s current management has the objectivity, experience and transparency to ensure the integrity of the insurance fund.
RECO then took over mandatory continuing education, forcing registrants to purchase continuing education exclusively from them, making all accredited educators redundant. Once RECO’s initial CE price guarantee period ends, I predict CE fees will steadily rise just as they have for E&O insurance premiums.
Now it looks like initial licence training may be RECO’s next target. However, every business involved in the real estate sector should be on guard as RECO continues to target private industry revenue. What is next? Does RECO have plans to take over the home inspection business? Appraisals? Mortgage loan insurance? Title insurance? Property management? Landscaping?
This raises a much bigger question. What is RECO – a regulator – doing with all of this business revenue?
Ontarians may never know since RECO, unlike proper government departments, is exempt from all freedom of information requests. Transparency is ultimately the best tool to ensure Ontarians get value from their regulators. For example, we know from the Sunshine List that RECO’s government boss, Minister MacCharles, made $166,177 in 2016. But we, and even Minister MacCharles, have no idea what RECO’s CEO or executives make. Remarkably, the Auditor General of Ontario – the province’s spending watchdog – is forbidden by law to conduct a complete examination of RECO to ensure that registrants are getting good value for their hard-earned money.
The solution is clear. The Minister of Consumer Services should revoke RECO’s legislative authority and take back oversight of the real estate industry. E&O insurance rightfully falls under FSCO’s capable oversight. RECO’s mandate is to regulate. It should not be engaging in the businesses of insurance, education and whatever other businesses it is now targeting. We have a precedent. The premier of British Columbia stated that B.C.’s real estate regulator could no longer be trusted to act in the interests of British Columbians and a full mandate review was ordered. In Ontario’s case, we have a decade of evidence of a regulator using its power to take over private industry.
It is time to put a stop to RECO’s empire-building.