Trading apps found to encourage risk-taking as FCA keeps platforms under review

UK financial regulators have announced that they are keeping trading apps under review over concerns that they are encouraging risk-taking among users.

The Financial Conduct Authority said on Thursday that an online experiment with more than 9,000 users found that so-called game-like features known as 'digital engagement practices' or DEPs can increase trading frequency and risk taking.

The FCA's Consumer Duty standards stipulate that trading apps must ensure services "meet consumers' needs and enable them to make effective, timely and properly informed investment decisions, including for those with characteristics of vulnerability".

Using an experimental trading app platform that it built, the FCA tested the effect of different DEPs like push notifications and prize draws on trading behaviour and found that push notifications increased the number of trades made by 11% while points and prize draws increased trades by 12%, simultaneously raising the proportion of trades considered risky by 8% and 6%, respectively.

Those with low financial literacy, especially users from younger age groups, increased their trading more than the more knowledgable users.

"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", according to the FCA's executive director of consumers and competition, Sheldon Mills.

“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.”