UK watchdog warns against gamification of tradings app


The UK’s financial watchdog has warned against game-like elements in trading apps, saying that they risk leading consumers to actions against their interests. Financial Conduct Authority on Monday told claim trading apps were offering their customers in-app points, badges, and celebratory messages for creating works and that people using these features were more likely to invest in products beyond their risk appetites. It told operators of the apps to check their plans. Gamification become a bigger part of trading apps in current years, attracting the ire of US and UK regulators after last year’s meme-stock trading frenzy. The trend saw have-a-go amateur traders organize on social media to pump up the price of stocks including GameStop, leading retail investors wildly deals in shares. The FCA’s comments highlight its focus on stamping out trading behavior it views as speculation or akin to gambling.

Sarah Pritchard, FCA executive director of the market, said Some product design features could contribute to problematic, even gambling-like, investor behavior. We wish all firms that offer stock trading to consumers to review and, where appropriate, make improvements to their products. Research by the watchdog identified several design features in apps that give cause concern. Celebrate messages or cartoon confetti appearing after users made a trade drew attention, along with points, badges, rewards, and leaderboards that ranked users against each other.

We are concerned that this optimistic support may encourage people to trade more frequently or make investment choices that they otherwise wouldn’t celebrate messages and badges can lead people to take on more risk, FCA researchers wrote in a report. The study flagged design choices that might lead traders to pay attention to spurious information, such as frequent push notification 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 FCA said concerned researchers since users are inclined to stick to the defaults. Max Rofagha, creator and top leader of Finimize, an announcement service for retail investors, said apps had an economic reason to facilitate trading because it’s no secret that most brokerages make more money the more you trade.

Most retail investors both desire and are hip 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, added. The notice against gamification tracks the FCA’s liftoff of a multiyear push to encourage more than 1mn person in Britain it judges to have excessive cash holdings to invest their money. The regulator has also identified a fellow of more youthful 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 behavior, ensuring they provide support to their customers, particularly those in vulnerable circumstances or those showing signs of problem gambling behavior.

The UK financial regulator has warned against the use of game-like elements in trading apps, saying they risk tricking consumers into taking action against their interests.
The Financial Conduct Authority said Monday that stock trading apps give their customers in-app points, badges, and celebratory messages for making trades and the people who use these features are more likely to invest in products that reflect their risk tolerance exceed. It asked the operators of the apps to review their designs.
So-called gamification has evolved into 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 amateur traders organizing on social media to drive up the price of stocks, including GameStop, prompting retail investors to trade stocks wildly.
The UK’s economic watchdog has called on trading apps to review game-like design features, which the regulator says pushes consumers to invest in products they wouldn’t usually.

The Financial Conduct Authority (FCA) cautioned that while gamification can entertain consumers, it is used in ways that can mislead consumers and drive problem behaviors.

Research published by the organization found that people using apps with frequent notifications, in-app points, badges, and celebratory messages for making trades, are exposed to high-risk investments, with some exhibiting behaviors similar to problem gambling.

The authority said consumers using this type of app are also more likely to invest in products beyond their risk appetite.

A recent study revealed that nine percent of adults with investments have borrowed to invest, with nearly half saying they would not have been able to invest without a loan or credit.

Some product design features could be contributing to problematic, even gambling-like, investor behavior, said Sarah Pritchard, executive director of markets, at FCA. They wished all firms that deliver goods trading to consumers to review and, where appropriate, make improvements to their products based on these findings.

The problems presented by the FCA come as the financial industry anticipates the upcoming Consumer Duty, which comes into force next year.

The controller said that all businesses should be checking their effects now to ensure they are fit for purpose.

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Olivia Wilson
By Olivia Wilson


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