The UK Financial Conduct Authority (FCA) raised concerns about how trading apps are engaging with retail investors, following a review of 12 firms that revealed shortcomings in pricing models, risk assessments, and digital engagement features.
The FCA’s review found that while some firms act solely as introducers, directing clients to affiliated platforms, others operate as “manufacturers and distributors” of financial products, and must ensure they meet regulatory obligations under existing rules.
Revenue models varied widely across firms, including transaction and subscription fees as well as interest earned on client cash balances. Some pricing structures may not deliver fair value to customers and may need to be reassessed, the regulator said.
All firms acknowledged the importance of using digital engagement practices (DEPs) like notifications responsibly. However, the effectiveness of appropriateness checks was mixed, with some firms lacking adequate safeguards to assess whether customers understand the risks of high-risk investments.
A newly published Occasional Paper, titled “Playing the market: a behavioural data analysis of digital engagement practices and investment outcomes”, examined how DEPs such as prize draws and alerts affect investor behavior. The study found that apps employing more DEPs tended to attract younger, lower-income users who trade more frequently and experience poorer investment returns.
While the research stopped short of directly linking these app features to financial losses, it raised concerns about their potential to encourage harmful trading behavior.
The FCA said the findings are meant to help both new entrants and traditional brokers understand their responsibilities and ensure that customer protection remains a priority, particularly as they look to offer app-based investment services.
That said, FX brokers are among those that have been targeted by rogue operators who attempt to part unsuspecting investors from their cash.
The high number of warnings from the City watchdog, which issues alerts roughly on a daily basis, underscores the concern in the sector over cloned sites.
The FCA encourages traders or those considering online trading to exercise caution. Anyone who chooses to sign up with a fraudulent platform should bear in mind that they will not receive the financial authorities’ assistance should things go awry.
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- Source: https://financefeeds.com/fca-flags-concerns-over-trading-apps-targeting-retail-investors/
