The Ontario Securities Commission (OSC) has released a notice containing guidance on the utilization of digital engagement practices (DEPs), including best practices for registrants to apply them responsibly when serving retail clients, reflecting its staff’s findings in a recent review.
The regulator’s notice – titled “OSC Staff Notice 33-760 Digital Engagement Practices: Focused Compliance Examination of Online Retail Platforms” – recommended that registrants:
- Develop policies and procedures establishing a robust system of controls and supervision over DEPs, which should include design and development oversight, ongoing monitoring, suitability and advice considerations, and supervisory processes
- Let clients manage their manner of engagement
- Clearly disclose charges to clients
“We recognize that digital tools can help retail investors in a variety of ways to improve education, efficiency and promote smart decision-making,” said Matthew Onyeaju, the OSC’s senior vice president, registration, inspections, and examinations, in a news release.
“However, it is important that firms have taken adequate measures within their compliance framework to address the risks of improper use which could harm investors by encouraging excessive trading or speculative behaviours,” Onyeaju added. “These safeguards help maintain market integrity and support responsible investing.”
Review findings
The OSC’s news release summarized its staff findings in a review of registrants’ use of DEPs in an effort to ensure compliance with securities obligations.
The review revealed that registrants increasingly deployed DEPs. The OSC’s staff identified positive and negative examples of how registrants used DEPs.
Positive examples included utilizing DEPs to assist clients in tracking savings goals, offering educational nudges and alerts to enhance account security, and promoting long-term investing behaviour in the clients’ best interests.
On the other hand, negative examples that raised concerns included using DEPs in an attempt to spur trading activity, while failing to maintain sufficient policies and procedures. The OSC said it shared its findings with these registrants and informed them of any required action.
The OSC added that the results of this recent initiative would support further research efforts in this area.
The OSC defined DEPs as tools such as behavioural techniques, differential marketing, gamification, and design elements or features that intentionally or unintentionally engaged with retail investors on digital platforms, as well as the analytical and technological tools and methods. The OSC noted that certain gamification techniques for promoting some assets might lead to investor risks.
The OSC said it seeks to improve investors’ comprehension of DEPs’ possible impacts through its outreach efforts, resources, and research on the utilization of DEP-related techniques on investment platforms.
The OSC said it aims to safeguard investors from unfair or fraudulent practices, promote fair and efficient capital markets, increase confidence in such markets, spur capital formation, help the financial system be more stable, and reduce systemic risk.