Through OSC TestLab, which the OSC claims is a first for Canada, the agency aims to encourage the adoption of innovative capital markets solutions by helping tech providers and registrants test them in a live environment.
“We are proactively identifying areas where innovative solutions can drive progress in Ontario’s capital markets.”
-Grant Vingoe, OSC
OSC TestLab’s initial, spring 2022 experiments will focus on making product information more accessible or improve information-sharing and enhance client interactions, two areas in which the agency said registrants have “experienced compliance challenges.”
Potential solutions could include tech that aggregates product information in a standardized format, automates the collection of investor data, or incorporates new methods to assess this information.
“With OSC Testlab, we are proactively identifying areas where innovative solutions can drive progress in Ontario’s capital markets,” said Grant Vingoe, chair and CEO of the OSC. “Market participants and technology providers have a unique opportunity to test solutions that benefit Ontario businesses and investors.”
To be considered eligible for OSC TestLab, businesses must have an innovative product, service, or solution ready to be tested by March 31, 2022 in a live environment, and users in Ontario committed to testing. Applications for the Spring 2022 cohort are due on January 31.
The OSC’s Office of Economic Growth and Innovation decided to launch TestLab last month after discovering that tech providers were finding it difficult to test solutions with registrants “in part, because registrants may be reluctant to try new technologies without the involvement and guidance of the OSC.”
Earlier this year, the provincial securities regulator conducted a feedback survey of 128 registrants, eight tech providers, and 256 individual investors. The majority of registrants who responded said they believe that tech could help them improve their processes, listing their top priorities as obtaining and retaining clients, client focused reform (CFR) compliance, and compliance automation.
In response, the OSC launched TestLab to allow market participants to test their in-house solutions and tech developers to trial their innovations through partnerships with other capital market participants.
“There are many frameworks for promoting innovation, but they share one key idea – doing something new involves dealing with uncertainty,” said Pat Chaukos, director of the OSC’s Innovation Office. “Ideas need to be tested, and a testing environment that encourages creative thinking can help bring out the best ideas sooner.”
The launch of TestLab applications comes ahead of a series of new CFR amendments related to the know your product (KYP), know your client (KYC), and suitability obligations that will take effect at the end of the year and may require registrants to update their policies and procedures, including those related to collecting and documenting client information and making investment recommendations.
Although KYC, KYP, and suitability obligations “are among the most fundamental obligations owed by registrants to their clients,” the OSC said it has identified an opportunity to leverage tech and innovation to improve registrant-client relationships and make compliance more efficient, effective, and less costly.
OSC’s Innovation Office also helps businesses with innovative products, services, or applications that benefit investors through its LaunchPad support program. LaunchPad was founded in 2016 with a goal of supporting early-stage FinTech businesses by helping them navigate regulatory frameworks, explore flexibility around current regulatory obligations, and gain informal guidance on potential securities regulation implications.
This support extends to time-limited registration or exemptive relief to test solutions in a live environment. The OSC also offers a regulatory sandbox program for startups designed to permit experiments with new forms of capital formation, including crowdfunding and angel investment networks, which help startups and small businesses access financing.
On the cryptocurrency side, Canadian FinTech startups that offer crypto trading platforms, including Wealthsimple, Coinberry, and most recently, CoinSmart, have received temporary exemptions from Canadian securities regulators to test their offerings in a live environment.