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FCA: Trading Apps Must Rethink Engagement Features to Protect Users

Trading platforms must revise their engagement strategies to avoid inadvertently encouraging excessive or risky trading behaviours, the UK financial watchdog has warned.

The Financial Conduct Authority (FCA) conducted an online experiment involving more than 9,000 consumers and found that digital engagement practices (DEPs) used by trading apps, such as push notifications and prize draws, significantly increase trading frequency and risk-taking.

The FCA’s experimental trading app platform tested various DEPs to observe their impact on trading behavior. The study found that:

  • Push notifications and prize draws increased the number of trades by 11 per cent and 12 per cent, respectively
  • These DEPs also increased the proportion of trades in high-risk investments by eight per cent and six per cent, respectively
  • The impact was more pronounced among subgroups such as individuals with low financial literacy, women, and younger participants (ages 18 to 34)
Consumer Duty impact

Under the FCA’s Consumer Duty, trading apps must design their services to meet consumers’ needs and support effective, timely, and well-informed investment decisions, especially for vulnerable groups.

The FCA warned stock trading apps to review game-like design features in 2022 ahead of the Consumer Duty’s implementation. The Consumer Duty came into force for open products on 31 July
2023, and will come into force for closed products on 31 July 2024.

“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,” said Sheldon Mills, executive director of consumers and competition at the FCA.

“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.”

In the first four months of 2021 alone, 1.15 million new accounts were opened across four trading app firms in the UK. Over the past three years, these firms have seen more than 2.47 million new accounts created, highlighting the growing influence of trading apps in the retail investment market.

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