UK financial regulator The FCA has announced that it is keeping financial trading apps “under review” over gaming concerns, following an online experiment it conducted with over 9,000 consumers. The FCA found in its experiment that digital engagement practices (DEPs) used by trading apps, such as push notifications and prize draws, can increase trading frequency and risk taking.
In what it called “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).
In the online experiment The FCA tested four digital engagement practices (DEPs) looking at their effect on trading frequency and investment risk. The DEPs it looked at were:
- flashing prices,
- push notifications,
- trader leaderboard, and
- points & prize draw.
Under the FCA’s Consumer Duty, trading apps must ensure that 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.
Back in 2022, The FCA warned stock trading apps to review game-like design features 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 said it 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.
Some of The FCA’s key findings from the experiment included:
- 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.
The regulator also noted that younger participants (18-34) increased their end-of-trading portfolio riskiness by more than older participants (35+) across all DEPs (except flashing prices).
In 2022 the FCA warned against game-like design features in trading apps. It was reported at that time that in the first four months of 2021, 1.15 million accounts were opened across four trading app firms.
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.
The FCA’s Research Note: Digital engagement practices: a trading apps experiment can be downloaded here.
