UK watchdog warns against gamification of trading apps

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The UK’s financial watchdog has warned against the use of “game-like elements” in trading apps, saying that they risk leading consumers to take actions against their own interests.

The Financial Conduct Authority on Monday said share trading apps were giving their customers “in-app points, badges and celebratory messages for making trades”, and that people using these features were more likely to “invest in products beyond their risk appetites”. It told operators of the apps to review their design.

So-called gamification has become a bigger feature of trading apps in recent years, drawing the ire of US and UK regulators after last year’s “meme-stock” trading frenzy.

The trend saw have-a-go amateur traders organise on social media to pump up the price of stocks including GameStop, leading retail investors to wildly deal in shares.

The FCA’s comments highlight its focus on stamping out trading behaviour it views as speculation or akin to gambling.

“Some product design features could be contributing to problematic, even gambling-like, investor behaviour,” said Sarah Pritchard, FCA executive director of markets.

“We expect all firms that offer stock trading to consumers to review and, where appropriate, make improvements to their products.” 

Research by the watchdog identified a number of design features in apps that “give us cause for concern”. Celebratory messages or cartoon confetti appearing after users made a trade drew attention, along with points, badges, rewards and leader boards that ranked users against each other.

“We are concerned that these positive reinforcements may encourage people to trade more frequently or make investment choices that they otherwise wouldn’t . . . celebratory messages and badges can lead people to take on more risk,” FCA researchers wrote in a report.

The research flagged design choices that might lead traders to “to pay attention to spurious information”, such as frequent push notifications on smartphones, lists of stocks with the largest recent price changes and flashing red and green displays of real-time prices.

The default settings of some apps suggested high investment or leverage amounts, the FCA said, which concerned researchers since users are inclined to stick to the defaults.

Max Rofagha, founder and chief executive of Finimize, an information service for retail investors, said apps had a financial motive to encourage trading because “it’s no secret that most brokerages make more money the more you trade”.

“Most retail investors both expect and are wise to this, so simply banning certain design features doesn’t solve the long-term issue . . . Brokerages need to strip out jargon, clearly label risks and embed education into their journeys,” he added.

The warning against gamification follows the FCA’s launch of a multiyear push to encourage more than 1mn people in Britain it judges to have excessive cash holdings to invest their money.

The regulator has also identified a cohort of younger investors who dabble in high-risk products, such as cryptocurrencies and derivatives, and for whom “emotions such as thrill and excitement are key drivers for investing”. 

Pritchard said companies needed to monitor any worrying consumer behaviour, ensuring “they are providing support to their customers, particularly those in vulnerable circumstances or those showing signs of problem gambling behaviour”.

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