What has happened?
In November 2022, the FCA warned stock trading app operators to review design features in their apps, including those with game-like elements, which risk prompting consumers to take actions against their own interest. Features falling into this “gamification” category include sending frequent notifications with the latest market news and providing consumers with in-app points, badges and celebratory messages for making trades. The FCA has found that consumers using apps with these kinds of features were more likely to invest in products beyond their risk appetite.
What are the key points of the warning?
Alongside its warning to app operators, the FCA published research (available to view here and with the key findings summarised below) that raises concerns that customers using such trading apps are exposed to high-risk investments, and that some appear to exhibit behaviours similar to problem gambling.
The FCA found gamification being used in ways that may mislead consumers or lead to poor outcomes and problem behaviours.
The FCA intends to carry out further research into trading app use and design features, in particular to understand some wider financial vulnerabilities for users of these apps, such as whether they borrow to invest and the scale of any losses.
To ensure customers are being treated fairly and ahead of the Consumer Duty regulation coming into force next year, the FCA suggests that all firms should be reviewing their products now to ensure they are fit for purpose.
Key findings of the research
- Trading apps allow retail investors to trade directly and easily in a range of products, including fractional shares and high-risk investments such as crypto assets and contracts for difference. 1.15m new accounts were opened by four trading app firms in the first four months of 2021, almost double the number opened with all other retail investment services combined. Many of these customers were new to investing and younger than traditional investors.
- The researchers found gamification techniques that use positive reinforcement immediately after a trade, such as celebratory messages and falling confetti. They also noted the use of points, badges and rewards for undertaking certain behaviours and ‘leader boards’ that rank people based on these rewards . They are concerned that these positive reinforcements may encourage people to trade more frequently or make investment choices that they otherwise would not make.
- The researchers found frequent push notifications with the latest market news on stock movements and lists that draw attention to real-time price changes by flashing red and green, as well as lists of stocks that had seen the largest price movements in the previous 24 hours. They are concerned that giving information to consumers in this way may lead them to pay attention to spurious information and make investments which are not in their interests.
- Other features are likely to influence consumer choice such as how much to invest. For example, the researchers found that investment amounts and the amount of leverage offered were sometimes defaulted to high amounts. There is extensive literature showing that people are much more likely to stick to a default figure.
- The researchers are also concerned that the app features may blur the lines between online investing and gambling-like behaviours . Previous FCA research had shown that for many younger, new investors, emotions such as thrills and excitement are key drivers for investing. This might be especially heightened for investing in riskier investments such as cryptoassets and CFDs.
- The FCA is taking steps to follow up with some of the firms whose trading apps were reviewed and it has stated that 'some product design features could be contributing to problematic, even gambling-like, investor behaviour’. It expects all firms that offer stock trading to consumers to review and, where appropriate, make improvements to their products based on these findings. Firms should also ensure they are providing support to their customers, particularly those in vulnerable circumstances or those showing signs of problem gambling behaviour.
- To ensure customers are being treated fairly and ahead of the Consumer Duty regulation coming into force next year, all firms should be reviewing their products now to ensure they are fit for purpose.
How can we help you?
If you’d like to know more about how we can help you with your stock trading app arrangements, Consumer Duty regulation or any other regulatory compliance issues, our specialist team is here to help.
Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.