FCA keeps trading apps under review over gaming concerns


INSIGHT
Published
Jun 20th '24
Share
Facebook

In an online experiment with over 9,000 consumers, the Financial Conduct Authority (FCA) found that digital engagement practices (DEPs) used by trading apps, such as push notifications and prize draws, can increase trading frequency and risk taking.

 

In an FCA first, the regulator built an experimental trading app platform to test the effect of different DEPs on trading behaviour. It also found evidence that DEPs can have a larger impact on some subgroups, including those with low financial literacy, women and younger participants (18-34).

 

Under the FCA’s Consumer Duty, trading apps must ensure services are designed and tested so they meet consumers’ needs and enable them to make effective, timely and properly informed investment decisions, including for those with characteristics of vulnerability.

 

The FCA warned stock trading apps to review game-like design features in 2022 ahead of the Consumer Duty’s implementation.

 

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: ‘Trading apps have the potential to transform retail investments, but some in-app features might be pushing consumers towards more frequent or riskier trading, which isn’t right for everyone.

 

‘With usage and popularity of trading apps growing, we’ll be keeping them under review to make sure customers can make investment decisions that suit their needs.’

 

The FCA continues to educate consumers about making better investment decisions and understanding the opportunities and risks, through its InvestSmart campaign. It has also brought charges against ‘finfluencers’ promoting financial products on social media.

 

Source : FCA

 

More information

  1. Read the FCA’s research on digital engagement practices.
  2. Key findings:
    • Push notifications and points & prize draw increased the number of trades made, by 11% and 12% respectively.
    • Push notifications and points & prize draw increased the proportion of trades that were in risky investments by 8% and 6% respectively.
    • Those with low financial literacy increased their trading by more than those with high financial literacy in the presence of flashing prices and trader leaderboards.
    • Women increased their trading frequency by more than men when push notifications and points & prize draw were introduced.
    • Younger participants (18-34) increased their end-of-trading portfolio riskiness by more than older participants (35+) across all DEPs (except flashing prices).
  3. In the research, low financial literacy was defined as giving 1 or fewer correct answers in response to the ‘Big Three’ financial literacy, which ask about the effect of compound interest and inflation as well as the importance of investment diversification.
  4. In 2022 the FCA warned against game-like design features in trading apps. We reported at that time that in the first four months of 2021, 1.15 million accounts were opened across four trading app firms.
  5. In the last three years, at just four trading app firms, more than 2.47 million accounts have been created across the UK. This is based on MiFID reporting data. MiFID reporting data includes all accounts opened which go on to trade a MiFID instrument. Note: as they are generally not MiFID instruments, this excludes most accounts which solely trade currency and/or cryptoassets.
  6. In May 2024, the FCA brought charges against nine individuals in relation to an unauthorised foreign exchange trading scheme promoted on social media.
  7. Find out more about the FCA’s InvestSmart campaign.

 

About the FCA

 

Need some promotional advice? If you want to understand more about how to make sure your marketing materials meet FCA standards, please click here.

 

 

About us

The Compliance workload shows no signs of decreasing. An ever-growing list of requirements and regulatory changes makes the compliance role harder than ever.

 

LS Consultancy offer a complete solution with a range of cost effective, regulatory compliance and marketing products and solutions including copy advice and copy development which are uniquely suited to supporting firms.

 

When you face business or regulatory challenges, we provide solutions that are tailor-made to your needs with a view to releasing your energies to focus on your clients.

 

Explore our full range today.

 

Need A Regulatory Marketing Compliance Consultant?A Bit More About Us

 

Contact us

 

Call Us Today on 020 8087 2377 or send us an email.

 

FOLLOW US

Connect with us via social media and drop us a message from there. We’d love to hear from you and discuss how we can help.

 

Facebook | Instagram | LinkedIn | X (formerly Twitter) | YouTube

 

Contact us