Alternative Lenders Push Back on Regulators Lumping Them With Private Credit

A paper released last month by the Canadian Alternative Mortgage Lenders Association draws a line its members say regulators keep ignoring: the difference between regulated alternative lenders and private credit funds operating outside traditional oversight frameworks.

The distinction matters because the Office of the Superintendent of Financial Institutions and the Bank of Canada have lately been grouping both under the umbrella term "non-bank financial intermediaries" when discussing systemic risk. CAMLA's position is that this conflation obscures more than it clarifies.

Alternative lenders, the ones CAMLA represents, are mortgage finance companies licensed under provincial regulation, subject to capital adequacy rules, required to report loan performance, and overseen by provincial superintendents. They originate mortgages for borrowers the Big Six won't touch: self-employed income, recent credit events, thin files, foreign buyers. Most sell their mortgages to institutional buyers or package them into National Housing Act Mortgage-Backed Securities. They are not unregulated. They are differently regulated.

Private credit is a different structure entirely. These are funds, often exempt-market vehicles, raising capital from accredited investors and deploying it across asset classes that can include real estate but also corporate debt, venture lending, distressed situations, and opportunistic bets. They are pooled investment products, not deposit-taking or mortgage origination businesses. The reporting is lighter. The capital rules are nonexistent or self-imposed. The liquidity profile is entirely different.

Why regulators group them anyway

OSFI's concern is about shadow banking: credit intermediation happening outside the prudentially regulated banking system, where the authorities have less visibility and less ability to intervene if liquidity or solvency problems emerge. From OSFI's vantage point, both alternative mortgage lenders and private credit funds share one thing, they are not banks. That alone makes them potential transmission channels for stress the regulator cannot easily contain.

The CAMLA paper does not dispute that regulators should be watching non-bank finance more closely. It disputes the analytical framework. A regulated mortgage company that reports monthly to a provincial regulator and sells its loans into guaranteed securities programs is a known quantity. A private fund raising money through exempt-market prospectuses and deploying it into construction loans at 12% is not. Treating both as equivalent risks because neither holds a bank charter misses the structural difference.

What this is actually about

The immediate trigger is likely the consultation process around macroprudential oversight. The Bank of Canada has been telegraphing for two years that it wants broader authority to monitor and possibly regulate non-bank mortgage lenders, particularly those touching the residential market. The concern, stated plainly in multiple Financial System Review reports, is that a correction in house prices could propagate through channels the central bank cannot currently see or control.

Alternative lenders hear that and understand the subtext: you are next. The problem is that the policy tools being floated, capital buffers, liquidity requirements, stress testing, are designed for deposit-funded institutions that face maturity transformation risk. Alternative lenders do not fund themselves with deposits. They fund through warehouse lines, securitization, and whole-loan sales. Applying bank-style capital rules to that business model is not a neutral regulatory extension. It is a category error that could render the model uneconomic.

Private credit funds, meanwhile, remain largely outside this conversation. They are regulated as securities products, not lenders. Their investors are sophisticated. Their disclosure obligations run to the securities commissions, not OSFI or the provincial mortgage regulators. If macroprudential policy gets written to capture "non-bank mortgage lenders," it will land on the companies CAMLA represents. The ones actually writing the high-rate construction loans and unregulated bridge financings will continue operating under a different rulebook entirely.

CAMLA's paper is an attempt to get ahead of that outcome. Whether regulators are listening is another question.