UK financial regulator Financial Conduct Authority (FCA) has published a new multi-firm review entitled Trading apps: high-level observations. The publication aims to support new firms and traditional investment brokers seeking to offer these services, to help them better understand their existing obligations.
The review assessed the business models, product offerings and services of 12 trading app firms, identifying both positive practices and areas needing improvement.
A growing number of retail customers now access financial products and services through desktop and mobile applications. Data from the FCA’s Financial Lives 2024 survey shows that 3% of adults (1.6 million) were using a trading app, with use higher amongst men (5%) than women (1%). Almost half (47%) of trading app users were aged 18 to 34, while just one-sixth (18%) were 55 or older.
Trading apps, commonly known as ‘neo-brokers’, have allowed more retail investors easier access to a wider range of investments. This ease of access can help improve their financial lives. However, some trading apps offer higher-risk investments traditionally aimed at wholesale markets. Many offer low or commission-free trading, which has helped attract new retail customers to trading. The range of products and services available via these apps is also increasing.
This is a growing sector. New firms have entered the market while traditional investment brokers have also introduced trading apps.
Where firms are diversifying and growing, the regulator said it wants them to do so in a sustainable way, while supporting innovation and growth, and helping consumers to navigate their financial lives. To manage this, firms need appropriate oversight and controls to build trust in the sector. The FCA wants to see a consumer investments market where everyone can make well-informed investment decisions, understanding how they meet their needs and the risks they are taking.
Key findings on Trading Apps
Business models: Some firms act as introducers, directing customers to other platforms or an affiliated firm. Firms are encouraged to fully understand their obligations as both manufacturers and distributors, as set out in our rules.
Revenue drivers: Firms generate income in a range of ways, including transaction fees on trades, subscription fees and interest earned from cash balances. Some firms may need to reassess whether their current pricing structures provide good value for consumers.
Digital engagement practices: All firms demonstrated awareness of the need to use digital features, such as notifications, responsibly.
Appropriateness testing: While some firms had strong processes for assessing customer understanding of high-risk investments, others lacked adequate checks, potentially exposing consumers to unnecessary risks.
Research on consumer behaviour
The FCA has also published an Occasional Paper, Playing the market: a behavioural data analysis of digital engagement practices and investment outcomes. This research looks at how app features, particularly Digital Engagement Practices (DEPs) like notifications and prize draws, influence consumer behaviour. The study found that apps with more DEPs tend to attract younger, lower-income users who trade more frequently and often suffer worse investment returns. While the research doesn’t directly link DEPs to financial losses, it raises concerns about their potential impact.
