On 20th June 2024, the FCA published a press release presenting the results of its experiment, testing the effect of Digital Engagement Practices (DEPs) used by trading apps on consumer trading frequency and risk taking. What prompted the FCA’s research were its concerns over gamification practices that may encourage riskier trading behaviours and therefore could be harmful to consumers.
The FCA conducted the experiment with over 9,000 consumers and whilst conveying no additional information that could improve trading, tested four DEPs that attracted consumer attention namely:
- flashing prices – real-time price changes indicated with red and green flickers and directional arrows
- push notifications – frequent pop-up messages about price movements
- trader leaderboard – a table of traders with the highest returns, which participants could attempt to climb
- points and prize draw – a lottery where participants increased chances of winning by increasing trading
The experiment overall concluded that DEPs, such as push notifications and prize draws, can lead to more frequent trading and a higher proportion of trades in risky investments. In particular, key findings of the research included:
- Push notifications and prize draws increased the number of trades by 11% and 12%, respectively
- DEPs also increased the proportion of trades in risky investments by 8% and 6%, respectively
- Certain subgroups, such as those with low financial literacy, women, and younger participants (18-34), were more influenced by these practices
The FCA has previously stated the need for trading apps to meet the obligations under the Consumer Duty, in particular 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. This is particularly important for those consumers with characteristics of vulnerability.
In addition to this initiative, the FCA is also looking to ensure that consumers are better educated and receive greater protection though its ongoing review and education campaign, InvestSmart, which aims to help consumers make better investment decisions and understand the associated opportunities and risks., and through taking action against ‘finfluencers’ who promote financial products on social media without proper authorisation. See more in our article Financial Promotions on Social Media.
How can Complyport help?
The FCA has a firm stance on the need for scrutiny of trading app features that may affect consumer investment decisions, especially in light of new regulatory standards. Complyport can help firms in complying with the FCA’s expectations by providing a range of services:
- Regulatory Guidance: We can help your firm understand the FCA’s expectations and provide expert advice on the relevant regulatory requirements.
- Consumer Duty: Our Consumer Duty Readiness Assessment as well as our Consumer Duty Policies and Papers are a few of the ways we can assist your firm in implementing the Consumer Duty rules (Principle 12) within both the processes and the spirit of your business.
- Financial promotions: Our experienced consultants can provide advice as to the compliance standards of the financial promotions marketed in your trading apps or similar platforms. Our Financial Promotions compliance checklists can also act as a handy assessment tool for a preliminary self-assessment of financial promotions before these are distributed to the public.
- Training: We can provide training sessions to ensure that staff are aware of the requirements and the importance of the regulatory requirements, including the adherence to Consumer Duty rules.
By leveraging Complyport’s experience and expertise, firms can navigate the complex regulatory environment seamlessly and meet FCA’s rules and expectations.
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