As trading apps tend to employ gamification in order to retain the attention of younger investors, the Financial Conduct Authority has decided to keep a closer eye on them, and according to insiderintelligence.com, it could also punish firms that potentially exploit amateur traders.
Certain trading apps have been using gamification techniques that use positive reinforcement, such as the use of points, badges, and rewards, as well as celebratory messages for making a trade. Some apps also had leaderboards that ranked users against each other, and included lists of stocks with the largest recent price changes and flashing red and green displays of real-time prices.
According to the FCA, these techniques could encourage people to make riskier investments. Push notifications can also have the same effect, particularly on less experienced investors. Another cause for concern was the default settings of some apps, which encouraged high investment or leverage amounts.
In order to make sure that they remain on the FCA’s good side, these trading apps could analyse their offerings and identify any features that potentially harm consumers or encourage gambling-like behaviours. They could also introduce systems that are designed to support users in controlling their investments, such as trading breaks.
The FCA is backing up its claims with a survey involving more than 3,000 app users and 4 trading apps. Gambling behaviour in a population is sometimes assessed using the Problem Gambling Severity Index (PGSI), which asks a series of questions focusing on problematic behaviour.
Using the PGSI, 1 in 27 (3.75%) participants in the survey were classified as having problematic gambling behaviours. Expanding the groups to include those who are ‘at-risk’ of problem gambling behaviour, the figures increased to around 1 in 5 (over 20%) trading app customers. In the survey, being ‘at-risk’ of problem gambling behaviour appears to be linked with other indicators of vulnerability such as low financial resilience and low financial literacy.
According to the FCA, Consumer Duty is scheduled to come into force in 2023, and companies should make sure that their customers are being treated fairly ahead of this upcoming shake-up in retail financial services regulation.
In essence, Consumer Duty represents a new Consumer Principle that requires firms to act to deliver good outcomes for retail consumers. The principle requires firms to act in good faith, avoid causing foreseeable harm and enable and support customers to pursue their financial objectives.
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