FCA keeps watch on trading apps over gamification concerns

The UK financial regulator says push notifications and prize draws encouraging riskier trading

Close-up of hands of businesswoman on trading apps
(Image credit: Getty Images)

The UK financial regulator has expressed concerns over the gamification of trading apps, saying it is pushing consumers “towards more frequent or riskier trading”.

On the back of an experiment with over 9,000 consumers, the Financial Conduct Authority found push notifications and prize draws can result in consumers taking actions against their own interests.

The experimental platform set up by the FCA showed digital engagement practices had a bigger impact on people with low financial literacy, women and younger participants.

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Sheldon Mills, executive director of consumers and competition at the FCA, says: “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.

“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.”

 ‘Meme stock’ frenzy 

So-called gamification has become a more prominent feature of trading apps in recent years, eliciting concern from US and UK regulators after the recent ‘meme-stock’ trading mania.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says the FCA’s findings are “extremely worrying and that it is not surprising the watchdog has put some practices under review”. 

“Push notifications, gamification and prize draws risk turning trading into a game, when instead the priority should be placed on taking long-term, well thought through decisions to benefit client outcomes and future financial resilience,” she says. 

“The more established platforms steer clear of such digital engagement practices highlighted by the FCA and crucially also don’t have chat rooms, which can lead to risk decisions based on herd behaviour.”

Streeter adds that research carried out by Hargreaves Lansdown has already shown that younger people are putting high-risk investments ahead of debt repayments, leaving them in a highly precarious position.

“Among Millennial and Gen Z households who are in arrears, 70% of people are investing, or speculating, when they should be focusing on getting out of arrears and building up their financial resilience,” she says.

Although trading apps have democratised the whole investment process and opened up what was seen as an industry closed off to most people, there is a concern that the most vulnerable in society may be prompted into making the bad financial decisions.

Streeter says: “It is extremely tempting to get carried away, especially as so many people already run their lives through apps. From fitness and health through to holiday bookings and bank accounts, the phone in the pocket has become our personal digital assistant. Many people already manage money on an app, so managing a trade is seen as the natural next step. 

“Many of the new trading apps have been designed based on the interactions people already have on social media, including push demand attention. Some apps have even congratulated users for making trades with celebratory animations.”

Chris Newlands

Chris is a freelance journalist, and was previously an editor and correspondent at the Financial Times as well as the business and money editor at The i Newspaper. He is also the author of the Virgin Money Maker, the personal finance guide published by Virgin Books, and has written for the BBC, The Wall Street Journal, The Independent, South China Morning Post, TimeOut, Barron's and The Guardian. He is a graduate in Economics.