The Financial Conduct Authority (FCA) recently published a multi-firm review of trading apps, also referred as ‘neo-brokers,’ focusing on their business models, product offerings and compliance with regulatory requirements. The review, conducted earlier this year, scrutinised twelve firms of varying sizes and operational models, providing insights into both good practices and areas requiring improvement.
With the growing popularity of trading apps, the FCA’s findings aim to support firms in meeting their regulatory responsibilities while promoting better outcomes for consumers in a rapidly evolving market.
Business Models and Consumer Duty
The FCA’s review assessed the extent to which trading apps align their business models with the Consumer Duty, a fundamental regulatory requirement under PRIN 2A, which mandates firms to act to deliver good outcomes for retail customers.
Many firms demonstrated innovative approaches, such as subscription-based models, which the FCA noted as a positive step when executed thoughtfully. Good practice included firms evaluating whether a customer’s subscription level and trading volume delivered fair value. For instance, some firms ensured pricing structures reflected the benefits provided, which the FCA found to promote transparency and trust.
However, the FCA also identified shortcomings:
- Some firms failed to evaluate whether their fees represented fair value, in accordance with PRIN 2A.6.
- There were concerns where firms relied on revenue sources, such as transaction fees or interest on client balances, without clear consumer benefit analysis.
The review also highlighted the role of affiliates, particularly those based overseas. Firms acting as introducers to overseas entities have to comply with SYSC 8 and COBS 2.4, to clearly communicate to customers that their trading agreements are with these entities, including, any potential loss of asset protection that may arise as a result. The FCA emphasised that firms must fully understand their dual responsibilities as manufacturers and distributors under PROD 3.2 and 3.3.
Digital Engagement Practices
Digital Engagement Practices (DEPs), such as push notifications and gamified features like points and prize draws, were another focal point. Although the FCA noted that most firms did not rely heavily on such features, some made positive use of analytics tools to allow customers to review their trading patterns.
While this was viewed as supporting informed decision-making, the FCA reiterated guidance, warning that DEPs could increase trading frequency and lead to harmful outcomes if left unchecked. Firms were cautioned to monitor these practices closely to avoid nudging customers toward excessive or inappropriate trading.
Appropriateness Tests for High-Risk Products
Trading apps often provide access to high-risk or complex products, which require stringent appropriateness tests to ensure their suitability for retail customers. The FCA reviewed the rigour of appropriateness tests used to assess customer suitability.
Positive examples included:
- Clear eligibility checks (e.g., minimum income or experience levels).
- Use of multiple-question banks with high pass thresholds.
- Mandatory cooling-off periods following test failures.
However, the FCA also noted inconsistencies. Some firms were found to use overly simplistic or generic questions, which posed a greater risk of mis-selling to those unprepared for high-risk investments. The regulator stressed the importance of collecting sufficient and relevant information to ensure products reach their intended target market.
Target Market Definition
The FCA’s review also covered how well firms defined and documented their target markets, as required under the PROD rules.
Effective firms used:
- Risk scoring tools to classify customer suitability.
- Clear identification of negative target markets, that are the groups for whom a product is inappropriate.
In contrast, firms with vague or overly broad target definitions risked misalignment between product features and customer needs, increasing the potential for harm.
Key Takeaways
While many firms demonstrated good practices, such as transparent pricing and comprehensive appropriateness tests, others needed to address gaps in fair value assessments and target market precision.
By adhering to these findings, and following the FCA’s good practices, trading app providers can enhance consumer trust, position themselves competitively and contribute to a fairer, more transparent investment market.
How Complyport Can Help
Our expert team is ready to guide you through the complexities of Consumer Duty in trading apps. With deep knowledge of FCA regulations and best practices from leading firms, we can help ensure your operations align with consumer-focused standards. Our services include:
- Consumer Duty Support: Ensure pricing, communications and product design meet FCA expectations.
- Product Governance and Target Market Clarity: Define clear, compliant target markets and approval processes.
- Appropriateness Testing: Design robust tests for high-risk products in line with COBS 10.
- Digital Engagement Oversight: Review gamification, push notifications and DEPs for compliance.
- Ongoing Regulatory Support: Provide compliance monitoring, audits and outsourced compliance roles.
Book a Meeting with a Complyport SME
To understand how the FCA’s trading app review and Consumer Duty requirements apply to your firm, book a meeting with a Complyport Subject Matter Expert today.
Ask ViCA, your Virtual Compliance Assistant.
Access instant answers on regulatory changes.
Claim your complimentary 20 queries today! Register here: https://vica.chat
