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Staff of the Ontario Securities Commission conducted a targeted sweep focused on the use of digital engagement practices (DEPs) by certain registered dealers and advisers, as well as certain crypto asset trading platforms. The sweep was designed to gain a greater understanding of the types of DEPs being used by registrants and to examine registrants' compliance with securities law requirements. The results of the sweep were discussed in OSC Staff Notice 33-760 – Digital Engagement Practices: Focused Compliance Examination of Online Retail Platforms (Staff Notice).
As described in the Staff Notice, DEPs are tools that include behavioural techniques, differential marketing, gamification, design elements, or design features that intentionally or unintentionally engage with retail investors on digital platforms. Staff saw a range of both positive and potentially concerning uses of DEPs in the sweep. Some positive examples include:
- helping clients track savings goals and monitor investment contributions; and
- delivering educational nudges and alerts to promote account security and encourage long-term investing behaviour.
However, staff also found promotional or unsubstantiated language in push notifications, rewards programs, contests, and other features that prompt clients to trade more frequently, which would result in additional risks and fees for trades they would not have engaged in without the DEPs.
Other issues identified include the omission or concealment of material information about pricing and applicable charges, exaggerated or unsubstantiated claims about the registrant or an asset that is traded on the registrant's platform; deficient policies and procedures related to the use of DEPs, and insufficient controls and supervision. Regulatory concerns identified include the potential provision of advice through the use of DEPs when they were linked to specific products or used to influence investment decisions, as well as potential conflicts of interest where the registrant would benefit from increased client activity.
The Staff Notice suggests that registrants develop policies and procedures relating to DEPs, which should include – at a minimum, the following: an assessment at the design stage to asses whether the interactions or marketing content could be inconsistent with the firm's regulatory obligations; ongoing monitoring; considering whether any advice is being provided and if so, ensure that a suitability determination is conducted; and implementing a supervisory process for review of DEP content. Clients should also be able to easily control and manage their notifications and be provided with all transaction charges before and after each trade. Please contact us if you have any questions about the use of DEPs and the implementation of policies and procedures with respect to these tools.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
