Along with the publication of a research paper, ‘Gaming Trading: how trading apps could be engaging consumers for the worse’¹ (‘the research paper’) the United Kingdom Financial Conduct Authority (‘FCA’) issued a press release on 21 November 2022 warning stock trading app operators to review design features, including those with game-like elements, which risk prompting consumers to take actions against their own interest.
 
According to the research paper, gamification of trading apps ‘can sometime play a role in driving poor outcomes for consumers.’ The writers of the research paper found some features in several trading apps examined by them raise cause for concern. Examples cited by in the research paper include the following: 

The research writers opined that positive reinforcement features may encourage people to trade more frequently or make investment choices that they otherwise would not. According to the writers, a recent study found that celebratory messages and badges can lead people to take on more risk when investing.
 
Concern was also expressed that giving stock pricing information in the manner described in item 3 above may lead consumers to pay attention to spurious information and make investments which are not in their interests. Another research showed that attention triggers, such as push notifications, can stimulate people to trade in a riskier way using higher leverage and trading larger amounts.
 
The writers also cited another study to show that displaying ‘leader boards’ for stocks that have seen the largest price changes in the last 24 hours may drive consumers to pay attention to and trade on the basis of this information, making poorer returns as a result.
 
Whilst acknowledging that gamification can be used to engage consumers positively, the FCA also found that gamification was being used in ways that may mislead consumers or lead to poor outcomes and problem behaviours, including gambling-like investor behaviour. The FCA added that it expects all firms offering stock trading to consumers to review and, where appropriate, make improvements to their products based on the findings. The FCA added that firms should also ensure they are providing support to their customers, particularly those in vulnerable circumstances or those showing signs of problem gambling behaviour.
 
The FCA expressed its intention to conduct further research into trading app use and design features, in particular to understand some wider financial vulnerabilities for users of these apps, such as whether they borrow to invest and the scale of any losses.
 
The FCA urged all firms to review their products to ensure their customers are being treated fairly in anticipation of the new Consumer Duty³ that will come into force on 1 July 2023, which among others, sets higher expectations for the standard of care to be given to consumers in retail financial markets and requires firms to design services so that consumers can make effective, timely and properly informed decisions about financial products and services.
 
Comment
 
It may be timely for the Securities Commission Malaysia to determine whether similar concerns exist in relation to trading apps made available by local capital market intermediaries and if such concerns exist, whether the guidelines that regulate the conduct of such market intermediaries, such as the Guidelines on Conduct for Capital Market Intermediaries, Guidelines on Advertising for Capital Market Products and Related Services and Guidelines on Market Conduct and Business Practices for Stockbroking Companies and Licensed Representatives contain adequate provisions to enable the Securities Commission to regulate the design of trading apps.
 
Article by Phua Pao Yii (Partner) of the Corporate Practice of Skrine.
 

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