The Financial Conduct Authority (FCA) has published a Multi-firm Review titled "Trading apps: high-level observations," offering guidance for new and traditional investment brokers planning to offer trading app services. The review highlights key regulatory obligations for these firms.

The FCA is investigating trading apps due to concerns that digital engagement practices (DEPs), such as push notifications and prize draws, may encourage excessive risk-taking. A recent study of over 9,000 consumers revealed that these features contributed to more frequent trading and riskier investments. Push notifications increased trades by 11%, while prize draws boosted trades by 12%, with risky trades rising by 8% and 6%, respectively.

FCA Flags Concerns Over Trading App Practices

The review assessed the business models, product offerings, and services of 12 trading app firms, identifying both positive practices and areas for improvement.

One key finding concerns business models. Some firms operate as introducers, directing customers to other platforms or affiliates. The FCA urges firms to fully understand their roles as both manufacturers and distributors, as defined in its rules.

Another finding relates to revenue drivers. Firms generate income through transaction fees, subscription fees, and interest on cash balances. Some may need to reconsider whether their pricing structures offer fair value to consumers.

The review also noted the responsible use of digital engagement practices. While all firms acknowledged the importance of using features like notifications carefully, some still lacked adequate processes for ensuring customer understanding of high-risk investments, exposing consumers to potential risks.

You may find it interesting at financemagnates.com: FCA Warns Trading App Operators to Stop the Trading Gamification.

FCA Study Links Digital Features to Risks

Additionally, the FCA published an Occasional Paper, "Playing the market: a behavioural data analysis of digital engagement practices and investment outcomes." This research examines how app features, particularly DEPs like notifications and prize draws, affect consumer behaviour.

It found that apps with more DEPs tend to attract younger, lower-income users who trade more frequently and often experience poorer investment returns. While the study does not directly link DEPs to financial losses, it raises concerns about their potential impact.